week ending 1st August 2025.

As you can see from the accompanying table, markets lost momentum at the end of the week. It was a week of mixed messages for markets as strong US data, solid tech earnings, and a steady Federal Reserve were overshadowed by geopolitics. President Trump reignited trade tensions with a fresh wave of tariffs, catching investors off guard and sending global equities lower by the end of the week.

The US economy showed surprising resilience in Q2, with GDP rebounding 3% on an annualised basis, far outpacing expectations and reversing the 0.5% contraction seen in Q1, which was heavily distorted by tariff front running causing a surge in imports. Inflation data was broadly in line with forecasts, with the Fed’s preferred core PCE index rising 0.3% month-on-month in June.

Also in the US, the Federal Reserve kept rates unchanged at 4.25%–4.50% for the fifth consecutive meeting. While this was widely expected, two dissenting votes in favour of a cut signalled growing unease within the committee. Chair Powell maintained a data-dependent stance, acknowledging a moderation in growth and inflation still “somewhat elevated.”

US Labour market data, however, told a different story. July’s nonfarm payrolls rose by just 73K, well short of expectations, and the previous two months were sharply revised lower by a combined 258K. The unemployment rate ticked up to 4.2% in July 2025, adding to speculation that the Fed may need to ease policy sooner than anticipated. Rate cut odds for September jumped back above 80% following the report.

Earnings headlines were another major focal point during the week. By Friday morning, earnings had rolled in from 66% of S&P 500 companies and 82% of those have outpaced Wall Street expectations. Big tech provided a temporary lift midweek. Microsoft impressed across the board, with revenue guidance and cloud computing growth both beating expectations. Microsoft is set to spend in excess of $30bn to build out the data centres powering its AI services. Meta also delivered, sending shares up more than 10% on the day. Amazon outperformed on both earnings and revenue but not enough to impress investors, while Apple’s report landed broadly in line with expectations. Despite macro headwinds, the sector’s earnings resilience remains a key support for equities.

In the Eurozone, GDP rose just 0.1% in Q2, a significant slowdown from Q1’s 0.6% pace and the weakest quarterly growth since late 2023. While the print was slightly better than expectations for zero growth, it reflected growing caution from both businesses and consumers.

Markets pulled back sharply on Friday as President Trump announced a broad set of tariffs affecting over 90 countries. Yet, in a familiar pattern, implementation has once again been postponed following the 1st August deadline. While the headlines felt dramatic, the substance was less severe than many economies had feared. Blanket tariffs of 10–15% were applied to most economies with trade surpluses with the US, with some countries negotiating exemptions or softer terms.

Separate agreements with Canada, Mexico, and China, alongside ongoing diplomatic discussions. The UK secured a relatively favourable outcome, with a 10% levy lighter than the 15% imposed on the EU and Japan. India, meanwhile, saw a targeted 25% tariff for some goods in response to Russian oil imports.

While the announcement rattled sentiment, the market reaction felt more like déjà vu than panic. We’ve seen this playbook before bold rhetoric followed by rounds of negotiations, exemptions, and ultimately, in many cases a more measured outcome. Markets will likely adjust quickly just as they did during previous trade flare-ups.

Next week brings fresh data on global services activity (including US and Chinese PMIs), European retail sales, and China’s balance of trade. The Bank of England meets on Thursday with a rate cut expected, marking a potential turning point in UK monetary policy.

Kate Mimnagh, Portfolio Economist