United States
Equity Markets and Inflation Signals
U.S. stocks delivered another strong week, with major benchmarks pushing into record territory as optimism surrounding potential Federal Reserve rate cuts grew. Investor sentiment was buoyed by a string of economic data releases that provided mixed but generally supportive evidence of moderating inflation. Small-cap stocks were a standout performer, as the Russell 2000 Index outpaced the large-cap S&P 500 by the widest margin in several months. The Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 all recorded weekly gains, with the Nasdaq and S&P setting midweek highs before easing slightly by Friday.
Geopolitical developments and trade headlines played a more muted role compared with macroeconomic releases. Early in the week, however, equity markets found additional support when the U.S. and China announced a 90-day extension of the current suspension on higher tariffs. This move was interpreted as a signal that trade negotiations remained constructive, reducing near-term uncertainty for global trade flows.
Consumer and Producer Price Data
Inflation readings were in sharp focus. The July consumer price index (CPI) report showed headline inflation easing to 0.2% on a monthly basis, compared with 0.3% in June. Declines in energy and grocery prices were the main drivers behind the slowdown. However, core CPI, which excludes food and energy, ticked up from 0.2% to 0.3%, lifting the annualized rate to 3.1%. This was the fastest pace since February, fueled largely by higher services costs such as housing and healthcare.
Investors initially welcomed the CPI figures as confirmation that price pressures were not accelerating sharply. Market participants quickly raised expectations for a September rate cut, sending equities higher and Treasury yields lower. But later in the week, sentiment cooled after the producer price index (PPI) came in hotter than anticipated. Wholesale prices rose 0.9% in July, far exceeding consensus forecasts of about 0.2%. Much like the CPI, services categories were the main contributors. This unexpected surge triggered a rise in long-term Treasury yields, as investors recalibrated expectations for monetary easing.
Retail Sales and Consumer Sentiment
Household spending trends remained broadly supportive of growth. July retail sales advanced 0.5%, led by strength in motor vehicle and parts sales. Importantly, June’s figure was revised upward from 0.6% to 0.9%, underscoring resilience in consumer demand. The so-called control group, which feeds directly into GDP calculations, also rose 0.5%.
Despite healthy sales activity, consumer confidence deteriorated. The University of Michigan’s preliminary August sentiment index dropped to 58.6 from 61.7 in July, the lowest in months. Survey participants cited rising concerns over inflation and the cost of living. Short-term inflation expectations climbed to 4.9% from 4.5%, suggesting that households are becoming more wary of persistent price pressures.
Fixed Income Markets
Bond markets experienced choppy trading as yields reacted to the inflation data. The Treasury yield curve steepened, with short-term yields edging slightly lower while longer-term yields rose in response to the stronger PPI report. Investment-grade corporate debt outperformed, with primary issuance met by robust investor demand. High-yield bonds also posted gains, supported by a stable economic backdrop and improved risk sentiment. Meanwhile, municipal bonds remained steady despite another week of heavy supply, reflecting strong appetite among investors.
Index Performance
| Index | Friday’s Close | Weekly Change | YTD % Change |
| DJIA | 44,946.12 | +770.51 | +5.65% |
| S&P 500 | 6,449.80 | +60.35 | +9.66% |
| Nasdaq Composite | 21,622.98 | +172.96 | +11.97% |
| S&P MidCap 400 | 3,172.49 | +48.45 | +1.65% |
| Russell 2000 | 2,286.52 | +68.10 | +2.53% |
Source: Reuters, Bloomberg, Yahoo! Finance. Data as of market close Friday.
Europe
Regional Markets
European equities recorded broad-based gains, with the STOXX Europe 600 climbing 1.18%. Investor optimism stemmed from hopes that U.S. interest rate cuts could support global growth and from signs of easing tensions around the Russia-Ukraine conflict. Major indexes across the continent advanced: France’s CAC 40 gained 2.33%, Germany’s DAX rose 0.81%, and Italy’s FTSE MIB surged 2.47%. The UK’s FTSE 100 added a modest 0.47%.
United Kingdom
The UK economy showed resilience, expanding 0.4% in June after contracting in May. Services, industrial production, and construction all contributed positively. On a quarterly basis, GDP growth slowed to 0.3% in Q2 from 0.7% in Q1 but still exceeded the Bank of England’s forecast of 0.1%. Export activity in Q1, driven by tariff-related adjustments, played a role in the earlier strength.
Labour market data showed relative stability. The number of payrolled employees fell by 8,000 in July, a smaller decline than June’s revised 26,000 decrease. The unemployment rate held at 4.7%, its highest since 2021, while wage growth including bonuses cooled to 4.6% annually. These developments suggest that while the labor market is softening, it is not deteriorating as quickly as some had feared.
Eurozone
The euro area delivered weaker data. Industrial production dropped 1.3% month-over-month in June, a sharper contraction than the consensus forecast of 0.9%. On an annual basis, output grew just 0.2%, down from May’s 3.1%. This slowdown indicates that momentum in manufacturing remains fragile. Additionally, investor confidence slipped in Germany, with the ZEW economic sentiment index falling to 34.7 from 52.7 in July, reflecting concerns over trade policies and modest economic contraction.
Norway
Norges Bank held its key interest rate at 4.25%. The central bank highlighted that further rate cuts could be considered later this year if economic trends align with expectations. This cautious stance follows a June cut, the first in five years, underscoring a gradual approach to easing.
Japan
Japanese equities continued their rally, with the Nikkei 225 advancing 3.73% and the TOPIX rising 2.76%. Both benchmarks reached record highs, reflecting optimism about domestic and global economic conditions. Contributing factors included stronger-than-expected GDP growth, robust corporate earnings, and improving trade prospects amid U.S.-China negotiations.
Japan’s GDP grew 1.0% quarter-on-quarter (annualized), surpassing forecasts of 0.4% and exceeding the previous quarter’s 0.6% pace. Export activity rebounded sharply as firms accelerated shipments to the U.S. ahead of tariff deadlines. Business investment remained firm, while private consumption also exceeded expectations, highlighting broad-based strength in the economy.
Currency markets also drew attention. The yen strengthened slightly to around JPY 146.9 per U.S. dollar, from JPY 147.7 the prior week. Comments from U.S. Treasury Secretary Scott Bessent suggesting the Bank of Japan might be lagging in tightening policy fueled speculation of an earlier rate hike. Consequently, yields on 10-year Japanese government bonds rose from 1.49% to 1.57%.
China
Mainland Chinese and Hong Kong markets rallied on news that the U.S. and China had agreed to extend their tariff truce until November. The CSI 300 advanced 2.37%, the Shanghai Composite rose 1.70%, and the Hang Seng in Hong Kong gained 1.65%.
Despite equity gains, economic data highlighted challenges. Consumer price growth was flat year-on-year in July, reflecting ongoing deflationary pressures. Producer prices fell 3.6%, marking the 34th straight monthly decline. This prolonged period of factory deflation underscores weak demand conditions. Other indicators reinforced the slowdown narrative. Retail sales growth eased to 3.7% from 4.8% in June, the weakest since December. Industrial output rose 5.7%, down from 6.8% the prior month. Fixed asset investment increased only 1.6% year-to-date, compared with 2.7% a year earlier. Collectively, these figures suggest the economy is losing momentum, raising concerns about the sustainability of China’s recovery.
Other Markets
Hungary
Hungary reported July inflation at 4.3%, easing slightly from 4.6% in June but above expectations. Core inflation held at 4%. Analysts noted that the persistence of inflation despite government-imposed price caps on various goods may limit the central bank’s willingness to cut rates. As a result, policymakers are expected to maintain the base rate at 6.50% until at least late 2025, contrary to broader market expectations of earlier easing.
Mexico
The Bank of Mexico reduced its benchmark overnight rate by 25 basis points to 7.75%. The decision reflected the need to balance slowing economic growth with elevated but easing inflation. Policymakers noted that while headline inflation has declined, core inflation remains sticky. Risks from global trade tensions and domestic economic slack weighed heavily on their assessment. Despite diverging views among board members, a majority favored continuing the easing cycle cautiously. Inflation is projected to align with the central bank’s 3% target by Q3 2026.
