Market movers:
Market drivers for H2 2025:
Risks:
The effective U.S. tariff rate is nearing 15%, though only half is currently enforced due to technical delays. Markets see new tariffs as temporary, but uncertainty continues to weigh on U.S. employment and investment. Inflation pressures are emerging in U.S. consumer goods, while global prices remain broadly disinflationary. Despite weaker real incomes, U.S. consumer spending is supported by credit and savings, while demand abroad remains more stable.
In the U.S.: Growth at 2% slows as tariffs and labor trends weigh on outlook
U.S. growth has slowed to 2% and is expected to remain subdued in H2 2025, with labor market cracks emerging, partly due to declining immigration. Trade tensions persist, with potential additional tariff hikes in August. Inflation rose to 2.7% in June, driven by goods prices, though easing service inflation should help contain it. The Fed is expected to cut rates by 100bps over the next 12 months, starting in September, from 4.25%-4.50% down to 3.25%-3.50%.
In Europe: U.S.-EU trade deal eases tensions, but growth remains subdued at 1.4%
The U.S. and EU have reached a trade agreement that caps tariffs on most goods imported into the U.S. at 15%, compared to an average of less than 5% prior to Trump’s “Liberation Day”. This deal averts steeper hikes and signals a de-escalation in trade tensions, although full details remain under discussion. As part of this agreement, the EU committed to purchase USD 750bn in U.S. energy and invest USD 600bn in the U.S. by 2028. The EU also agreed to significantly increase its purchases of U.S. military equipment. Against this backdrop, GDP growth in the Eurozone is expected to remain weak – below 1.4% – through year-end, with fiscal support and consumer savings providing some cushion. Inflation is easing and likely to drop below 2% in 2026, driven by lower energy costs and a stronger euro. The European Central Bank (ECB) is likely to cut rates once more this year, potentially in September, from 2.00% to 1.75%.
In China: Growth on track at 5.2% amid trade relief and policy support
China’s GDP grew 5.2% YoY, driven by front-loading, with full-year growth on track to meet the 5% target. Exports rose 5.9% YoY, while U.S.-China trade talks eased tensions and may cap U.S. tariffs at 30-40% by year-end. Further monetary easing is expected, including 50-100bps in reverse repo rate (RRR) cuts and 20-30bps in policy rate reductions. CPI remains subdued, near 0%, with fiscal support expected to remain reactive.
Equity: The market rally continued in July, led by Kospi (+5.8%) and Hang Seng China Enterprises (+4.1%), while India’s Nifty 50 fell 2.9%. Year to date, Asia outperformed with Kospi up 38.0% and Hang Seng TECH up 22.9%. U.S. indices rose steadily, with Nasdaq up 10.5% YTD.
Fixed Income: Yields rose across the board in July, with the 2-year U.S. Treasury yield up 24bps and the 2-year German yield up 11bps. Despite the recent rise, U.S. and German yields remain lower YTD, while Chinese yields are slightly higher.
Currencies: EUR and AUD weakened in July, while USDJPY rebounded 4.7%. EURUSD still leads YTD gains (+9.7%), despite the recent pullback.
Commodities: WTI oil rose 6.4% in July, but remains down 3.4% YTD. Copper dropped sharply (-13.9% MTD), while gold held flat in July and remains the best performer YTD (+25.3%).
Crypto: Ethereum surged 49.2% in July, while Bitcoin gained 8.3% and remains the best performer YTD (+24.4%). Despite strong MTD gains (+12.0%), Solana remains negative YTD (-8.9%).
Outlook for H2 2025: Resilient growth and rate cuts make a positive backdrop for diversified investment.
Equity markets remain near all-time highs with low volatility, but signs of complacency suggest a potential pickup in market volatility. Optimism around trade deals is priced in, yet uncertainty lingers, with risks of policy re-escalation. Prolonged uncertainty could weigh on corporate investment. Despite slowing growth, the macro backdrop remains resilient, supported by central bank easing and structural trends. Technology and themes like AI, Power, and Resources continue to drive strong earnings globally.
In the U.S.: Equities at highs amid supportive growth, AI tailwinds, and policy boosts
U.S. stocks have rebounded to record highs (+7.8% YTD), despite ongoing tariff threats and delayed Fed cuts, which may weigh on business sentiment. The bull market remains supported by resilient U.S. growth, expected rate cuts, and secular AI adoption, which now impacts 40% of the S&P 500 market cap. Fiscal policy, including tax incentives and deregulation, adds further tailwinds to corporate investment. While valuations are elevated (24x forward P/E), earnings expectations matter more than multiples. Low unemployment and subdued inflation expectations also help justify current valuations.
In Europe: European equities steady, but earnings outlook cautious
The Euro Stoxx 50 is up 8.7% YTD, though Q2 earnings may not yet reflect tariff impacts. Corporate guidance is expected to remain cautious amid weak global growth and a strong euro. Earnings season may be muted, but equities could find support from potential German stimulus, EU defense spending, and resilient consumer demand.
In China: Stocks rally on AI momentum, policy support, and strong earnings
The Hang Seng China Enterprises Index (HSCEI) is up 24% YTD. China’s Tech sector is gaining more appeal, driven by easing U.S. tensions, strong AI momentum, and attractive valuations. Earnings growth in 2025-26 looks strong, backed by AI, cloud demand, and government support for Tech self-sufficiency. H1 results beat expectations, showing solid demand and accelerating AI-led growth. Within Tech, Internet firms focus on AI monetization, while electric vehicle (EV) makers use AI to boost production and innovation.
The USD strengthened 3% in July on strong U.S. macro data, sold off 2% the first week of August, and is overall down 10% YTD. We note concerns over slower H2 growth, Fed rate cuts, rising deficits, and political pressure on the Fed point to potential USD weakness ahead. Doubts about Fed independence and surging debt continue to erode the dollar’s safe-haven status.
Rising FX volatility driven by tariff risks supports a proactive hedging approach to manage currency risk, especially with EUR, RMB, and JPY, which are linked to manufacturing economies.
EURUSD 3-year high at 1.1780, up ~13% YTD on broad dollar weakness
EURUSD has risen from near parity to a three-year high of 1.1780, as U.S. tariffs eroded confidence in the dollar’s reserve status. Further upside depends on clear signs of U.S. economic weakness, which are not yet confirmed.
USDRMB declines to 7.1880 from 7.37 high as gradual sell off resumes
The recent tariff deal in London has stabilized the RMB, with USDRMB trending lower since early May. Stronger People’s Bank of China (PBoC) fixings and improved flows suggest the Chinese central bank is comfortable with a firmer RMB. Appreciation is expected to be gradual and managed, given slower exports and soft domestic demand.
USDJPY at 147 as yen rallied ~7% YTD on dollar weakness
USDJPY held steady in June and July after a 7% selloff YTD, as the Bank of Japan (BoJ) left rates unchanged at 0.5%, citing growth uncertainty. The 10-year JGB yield increased from 1% to 1.5% in 2025. With the BoJ staying cautious, a drop in USDJPY will likely depend on upcoming Fed rate cuts. Hedging flows from Japanese investors and exporters should offer additional support for the yen.
Yields rose in July (e.g. U.S. 2-year +24 bps), though U.S. and German rates remain lower YTD. China yields are slightly higher. Credit spreads tightened, boosting returns across fixed income, which continues to outperform cash in 2025. Despite moderating growth, stable consumer demand and a soft June CPI support the Fed’s cautious approach to rate cuts. We favor a mix of duration on investment-grade bonds, with return potential coming from rates rather than credit spreads.
How to benefit from the cycle of central bank rate cuts?
Bond yields remain elevated, close to the 20-year peak, with credit spreads driven by political unrest in the U.S. and Europe. Yet, central bank support and resilient growth are keeping defaults low, creating an attractive window to add fixed income. Bank bonds offer strong value, with yields near 6% in USD and near 4% in EUR for 5–10 year maturities.
Gold: Up 25% YTD to USD 3,380/oz
Gold hit a record high of USD 3,500/oz in the first semester before pulling back 5% to USD 3,300/oz. Despite volatility in the first half of the year, demand was strong at 1,300 metric tons, the highest since 2016, driven by central banks and ETF buying. ETF inflows reached a three-year high, led by U.S. funds with support from Europe and Asia. Gold remains a preferred asset during global uncertainty, with growing interest from long-term investors amid the de-dollarization trend.
Oil: Down 4% YTD to USD 64/bbl, price supported by geopolitical risk
Crude oil prices remain supported as OPEC+ production increases were milder than expected – only 0.5m bpd added versus the 1m bpd quota. China’s stronger-than-expected demand and ongoing stockpiling have also helped stabilize prices. Chinese purchases appear strategic, likely aimed at filling reserves amid trade and geopolitical risks. These non-price-sensitive flows add a layer of demand resilience to the oil market.
