week ending 25th July 2025.

As shown in the accompanying table, equities rallied last week, buoyed by solid corporate earnings and growing optimism on the global trade front.

In the U.S., both the S&P 500 and Nasdaq Composite reached fresh record highs for the second week running. Market sentiment was lifted by announcements of new U.S. trade deals ahead of the 1st of August deadline. The Trump administration secured agreements with Japan, Indonesia, and the Philippines, while signs of progress in EU–U.S. trade talks added to the upbeat tone.

Importantly, and as we expected, President Trump’s initial high tariffs and tight deadlines have led to more moderate, negotiated outcomes. The new agreement with Japan, for example, sets tariffs at 15%, well below early projections. The deal also includes increased U.S. access to Japanese markets and significant Japanese investment into the U.S.

Earnings season also remained in focus. Among the Magnificent Seven, Google’s parent company, Alphabet beat expectations, supported by investor optimism around its AI strategy. In contrast, Tesla missed estimates and saw its share price decline over the week.

On the economic front, flash PMI data pointed to a pick-up in U.S. business activity, led by the services sector. The composite PMI rose to 54.6, while manufacturing slipped back into contraction at 49.5.  The upturn was driven by strong services activity, manufacturing output also increased, but at a modest pace, showing a divergence in momentum between sectors.

In Europe, equities were marginally higher, small gains were underpinned by cautious optimism around EU–U.S. trade discussions with the 1st of August deadline approaching. On Thursday, the European Central Bank left rates unchanged but struck a slightly hawkish tone. President Lagarde reiterated the ECB’s 2% inflation target and reinforced the central bank’s data-driven approach. Over the weekend, a long-anticipated agreement was reached, with most European exports to the U.S., including automobiles, set to face a 15% tariff. While higher than hoped, the deal provides businesses with clarity and avoids the risk of a broader trade dispute.

UK equities hit record highs this week, with the FTSE 100 up 1.4% as markets grew optimistic that governments will reach deals with the U.S. to avoid Trump’s proposed tariffs ahead of next Friday’s deadline. The UK has performed well relative to peers, securing a 10% tariff agreement on exports a notable win given earlier fears of steeper duties.

On the data front, retail sales rose 0.9% in June, rebounding from May’s drop but slightly missing expectations. Warmer weather boosted food and drink sales. Meanwhile, the composite PMI pointed to continued labour market weakness, especially in services. Consumer confidence dipped in July amid inflation worries and potential tax hikes in the Autumn Budget.

Prime Minister Keir Starmer will meet Donald Trump in Scotland early next week to discuss the remaining details of the UK–U.S. trade agreement and push for further progress on geopolitical issues, including a Gaza ceasefire.

Chinese equities also advanced, lifted by expectations of further easing in U.S.–China trade tensions. Earlier talks in Geneva and London helped pause tariff increases and ease export restrictions, and markets are hopeful that next week’s meeting will build on that progresses. Chinese officials are preparing for the third round of trade talks in Stockholm, where hopes are high for an extension to the current tariff truce ahead of the mid-August deadline.

Next week, Wednesday’s initial estimate of second-quarter GDP will show whether the U.S. economy bounced back after a 0.5% annualised contraction in the first quarter, partly driven by a surge in imports ahead of tariff hikes.

The week is packed with economic data and central bank decisions. U.S. consumer confidence and job openings kick things off, followed by the Fed’s meeting on July 30th, where rates are expected to remain at 4.25 to 4.50%. Later in the week, investors will focus on PCE inflation and labour market data. China’s PMI readings will provide a pulse check on manufacturing, while the Bank of Japan’s rate decision may signal its next policy move. Earnings from Amazon, Apple, Meta, and Microsoft are also in focus as investors look to Big Tech to support broader market sentiment.

Nicola Tune, Portfolio Specialist