Global Markets Weekly Update

U.S.

Nasdaq Composite sets fresh all-time high

U.S. equity indexes advanced for the week, rebounding from the prior week’s sell-off. The technology-heavy Nasdaq Composite performed best, closing the week at a record high, followed by the S&P 500 and Russell 2000 indexes. The S&P MidCap 400 Index lagged but still gained 0.63%.

Numerous stock-specific headlines helped drive market sentiment during the week. Notably, Apple announced that it would invest USD 100 billion—in addition to a previously announced USD 500 billion—in developing U.S.-based manufacturing over the next four years, which would reportedly exempt the company from the Trump administration’s steep tariffs on semiconductors. Shares of the iPhone maker closed the week 13.33% higher, helping support the broader indexes. 

In trade policy news, the Trump administration’s new round of global tariffs kicked in on Thursday, though several large U.S. trading partners had already reached agreements prior to the week’s deadline, and the market reaction appeared to be more muted compared with other recent tariff actions. Other tariff-related headlines included news that President Donald Trump would double tariffs on Indian goods to 50% as a punishment for the country’s purchase of Russian oil, as well as reports that U.S. negotiations with Switzerland ended without reaching a deal, leaving levies on Swiss imports at 39%.

September rate cut probability rises 

Another area of focus was on the seemingly increasing likelihood of the Federal Reserve lowering interest rates at its next meeting in September. Several Fed officials made comments during the week suggesting rate cuts could be in the near future, including Federal Reserve Bank of San Francisco President Mary Daly, who stated that the central bank “will likely need to adjust policy in the coming months” if the labor market slows any further and inflation remains relatively subdued.

On Thursday, President Trump also announced that he would nominate Stephen Miran, the current chair of the White House’s Council of Economic Advisors, to temporarily fill a vacancy on the Fed’s Board of Governors, which some investors viewed as potentially favoring looser monetary policy. As of Friday afternoon, markets tracked by the CME FedWatch tool were indicating a roughly 90% chance of the central bank lowering rates at its next meeting.

Services activity growth slows; jobless claims rise

In economic data news, the Institute for Supply Management (ISM) reported that its services purchasing managers’ index (PMI) declined 0.7 percentage points to 50.1% in July, missing consensus estimates for a reading of 51.3% and remaining just above the 50% threshold that separates growth from contraction. The report’s new orders and employment indexes both declined in July, with employment registering a contraction for the second consecutive month. Meanwhile, the prices index rose to 69.9%, the highest reading since October 2022. 

Elsewhere, the Labor Department reported on Thursday that initial claims for unemployment came in at 226,000 for the week ended August 2, up from the prior week’s revised level of 219,000. The advance number for seasonally adjusted insured unemployment—also known as continuing jobless claims—for the week ended July 26 rose 38,000 to 1.97 million, the highest level since November 2021.  

Treasuries decline; munis and corporate bonds outperform

U.S. Treasuries posted negative returns for the week as yields across most maturities fluctuated but ultimately ended higher than the prior week. (Bond prices and yields move in opposite directions.) Municipal bonds advanced, driven by strong cash flows and a heavy issuance calendar. Muni new issues were well oversubscribed and secondary trading picked up.

The U.S. investment-grade corporate bond market also generated positive returns. T. Rowe Price traders noted that the market softened on Tuesday following the weak ISM data, but conditions remained constructive for the market overall. Our traders also noted that high yield bonds recovered from weakness in the prior week amid an improved macro backdrop and heavy earnings calendar.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 2.11% higher on strong corporate earnings and hopes of a resolution of the Ukraine-Russia conflict. Major stock indexes rose, too. Italy’s FTSE MIB climbed 4.21%, Germany’s DAX gained 3.15%, and France’s CAC 40 Index added 2.61%. The UK’s FTSE 100 Index tacked on 0.30%.

BoE lowers borrowing costs 

The Bank of England (BoE) cut its key interest rate by a quarter point to 4%, apparently on concerns about a weakening labor market. The Monetary Policy Committee was split 5–4 in favor of the reduction after a second ballot—the first two-round vote since the inaugural meeting in 1998. Governor Andrew Bailey said the decision was “finely balanced” and reiterated that “interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully.” 

The BoE also forecast that inflation would accelerate to a two-year high of 4% in September, from 3.6% in August, and warned of a stronger risk of price increases in the coming years. The central bank is required to keep inflation at 2%—a target it has not achieved since last summer. 

Data show euro area economy holding up in second quarter

Strong retail sales and investor confidence data added to signs of a resilient eurozone economy in the second quarter. Retail sales expanded in June by 0.3% sequentially, increasing for three months running. However, they climbed 3.1% year over year, exceeding the consensus forecast of 2.0% in a FactSet poll of analysts, after upward revisions to monthly data for May and April. Investor confidence measured by the Sentix index rose over the second quarter, although the mood soured in August, suggesting that businesses were unimpressed with the framework trade deal between the U.S. and the European Union. 

German industry struggles 

German industrial output shrank in June by 1.9% sequentially, its lowest level since the pandemic in 2020 and worse than the 0.5% decline predicted by economists. May’s data were also revised lower to show a fall of 0.1% rather than the initial 1.2% increase. As a result, production contracted 1.0% in the second quarter. Separately, industrial orders fell 1.0% in June, the second consecutive monthly drop, due to weak foreign demand. The poor industrial data raised concerns that gross domestic product contracted in the second quarter by more than the early estimate of 0.1%.

Japan

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.50% and the broader TOPIX Index up 2.56%, supported by investors’ positive response to strong corporate earnings. The yen traded within the JPY 147 range against the U.S. dollar.

Trade developments appeared favorable, despite some signs early in the week that Japan and the U.S. had differing interpretations of the bilateral trade agreement reached in July. Markets were reassured as the U.S. administration clarified that the 15% tariff on Japanese exports to the U.S. would not stack on existing levies and that the tariff on autos would be reduced to 15% from 27.5%. 

BoJ board members differ on policy outlook

The yield on the 10-year Japanese government bond fell to 1.49% from 1.55% at the end of the previous week, as the Summary of Opinions at the Bank of Japan’s (BoJ) July monetary policy meeting showed that board members had debated the timing and pace of future interest rate hikes. One board member opined that at least two to three months were needed to assess tariff effects and that if the U.S. were able to withstand the effects better than expected, in turn having a lesser impact on Japan, then it could be possible for the BoJ to exit from its wait-and-see stance possibly as early as the end of this year. Another board member was more cautious, emphasizing that the central bank’s baseline scenario remains one of moderating economic growth and sluggish underlying inflation, necessitating continued monetary accommodation. 

On the economic data front, Japan’s real (inflation-adjusted) wages fell 1.3% year on year in June, following a 2.6% drop in May, as inflation continued to outpace pay gains. Household spending slowed sharply in June, rising 1.3% year on year, down from 4.7% in May and falling short of forecasts of a 2.6% rise. The slowdown was attributed to the impact of U.S. tariffs and persistent inflation on consumer activity.

China

Mainland Chinese stock markets rose for the week, aided by trade data underscoring the strong global demand for Chinese products despite the U.S.-sparked trade war. The onshore benchmark CSI 300 Index added 1.23% and the Shanghai Composite Index advanced 2.11% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index rose 1.43%.

Total exports in July surged a larger-than-expected 7.2% from a year ago to USD 322 billion, according to data released by China’s customs authorities. Increased shipments to Europe, Southeast Asia, Australia, and other markets outweighed the continued slump in U.S.-bound shipments, which sank 22% year on year in July after falling 16.1% in June. The latest data showed that Chinese companies were able to compensate for the loss of U.S. business with increased sales to other markets. Weakness in China’s yuan currency, which fell against the U.S. dollar and other currencies in July, also boosted exports last month, analysts said. 

Earlier in the week, a private survey showed an unexpected uptick last month in services activity, possibly indicating a turnaround in weak consumer sentiment. The S&P China services purchasing managers index rose to 52.6 in July from June’s 50.6 reading, the strongest growth in 14 months. While summer marks the peak season for services such as tourism, transportation, and entertainment, last month’s expansion showed the resilience of China’s services sector, which has been hit by sluggish consumer demand amid a prolonged housing downturn.

Other Key Markets

India

Central bank holds rates steady amid robust growth, tariff uncertainties 

During the week, the Reserve Bank of India (RBI) held its scheduled monetary policy meeting and decided to keep its key interest rate, the policy repo rate, at 5.50%. The decision, which was generally expected, was unanimous among policymakers. 

According to the post-meeting statement, policymakers deemed the global environment to remain “challenging,” with “trade negotiation challenges” continuing to linger. Indeed, India—unlike several other Asian nations—has yet to reach a trade agreement with the U.S. that would lead to a more favorable tariff rate. In fact, on Wednesday, U.S. President Trump signed an executive order that will raise the overall U.S. tariff rate on Indian exports to 50% in about three weeks because of the country’s direct and indirect oil purchases from Russia, which remains in a conflict with Ukraine.

In the Indian economy, policymakers characterized domestic growth as “resilient,” though they noted that growth in the industrial sector “remained subdued and uneven across segments.” Nevertheless, RBI officials believe that several factors “continue to support domestic economic activity” and that “supportive monetary, regulatory and fiscal policies…should also boost demand.”

As for inflation, policymakers observed that consumer price index (CPI) inflation fell for the eighth consecutive month in June amid a “sharp decline in food inflation.” They also noted that the inflation outlook for 2025–2026 has become “more benign than expected.” However, they lifted their longer-term CPI inflation projection to 4.9%, which is above the midpoint of the central bank’s 2% to 6% tolerance band.

Considering that Indian economic growth is “robust,” that tariff uncertainties “are still evolving,” and that the central bank has reduced interest rates by 100 basis points (one percentage point, or 1.00%) since February, RBI officials decided that it would be appropriate at this time to “continue with the neutral stance” by keeping the policy repo rate at 5.50%. With monetary policy neither restricting nor stimulating the economy, the central bank seems to have reached the end of a rate-cutting cycle.

Czech Republic

“Ongoing inflation pressures” preclude interest rate cut

On Thursday, the Czech National Bank held its scheduled monetary policy meeting, and policymakers decided to keep the main policy rate, the two-week repo rate, at 3.50%. Central bank officials also held the discount rate at 2.50% and the Lombard rate at 4.50%. The decision to reduce rates, which was generally expected, was unanimous among all seven Bank Board members.

According to the central bank’s fairly hawkish post-meeting statement, policymakers clearly indicated that “ongoing inflation pressures from the domestic economy currently preclude a further decrease in interest rates.” Specifically, they referred to central bank forecasts for inflation to be “above 2% for the rest of this year” and for core inflation to “remain elevated over the next few quarters.”

Central bank officials also noted that money supply is rising at a 4.1% rate and that credit growth is “gradually increasing.” They asserted that, in order to stabilize headline inflation around the central bank’s long-term 2% target, monetary policy must allow credit growth to remain “moderate” and must not allow money supply growth to “accelerate excessively.”