Weekly Commentary 15 July 2025

Summary

•             Markets shrugged off the reintroduction of tariffs last week, with global equities rising 0.72% and cyclicals leading gains despite broader trade tensions

•             The US Federal Reserve (Fed) minutes showed a divided committee, with markets still pricing in a rate cut by October as inflation cools

•             UK Gross Domestic Product (GDP) fell for a second consecutive month in May, driven by weaker manufacturing output and higher payroll costs, raising concerns over underlying economic momentum

•             UK inflation data this week is expected to show steady headline inflation but slower services price growth, supporting expectations of rate cuts later this year.

Market Review

Tariffs return; markets unphased

Markets took the return of tariffs in their stride last week, with major US indices little changed despite an escalation in trade tensions beyond the expected reintroduction of reciprocal tariffs. New levies were announced on a range of countries including Japan, South Korea, Canada, and Brazil, alongside a hefty 50% tariff on copper imports and threats of a 30% tariff on the EU. Investors remained unphased, supported by a resilient global economy and robust corporate backdrop. Cyclicals performed best, with energy, industrials, technology, consumer discretionary, and materials all outperforming the global equity market return of 0.72%.

The Fed minutes revealed a divided committee, with some members pushing for rate cuts as soon as July while others saw no case for easing at all this year. Markets continue to price in a cut by October, with the underlying narrative unchanged: inflation is cooling but not swiftly enough to force immediate action, and upside risks – notably from tariffs – remain. Treasury yields ended the week slightly higher.

In the UK, economic data disappointed, with GDP falling 0.1% in May following a 0.3% contraction in April. This marks the second consecutive monthly decline, raising concerns that the soft patch seen in April was not merely a one-off. Manufacturing output was the main driver of weakness, falling by 1% in May after a 0.7% drop in April.

Activity was also dampened by higher employer National Insurance Contributions, as firms continued to adjust to elevated payroll costs. While the UK economy grew by 0.7% in the first quarter, underlying momentum has slowed markedly, and forecasts for Q2 point to flat or marginal growth at best.

Looking ahead, markets expect the Bank of England (BoE) to restart easing policy in August, with further gradual cuts likely over the remainder of the year. With growth stalling and price pressures softening, the central bank has room to support the economy, though political risks and global trade uncertainty remain persistent headwinds.

Overall, despite rising trade tensions, markets remain anchored by the broader resilience of the global economy and the strength of the corporate landscape. This has capped volatility and supported risk assets in recent months.

The Week Ahead

Tuesday: US Consumer Price Index (CPI) inflation

Our thoughts: US inflation is anticipated to rise slightly to 2.6% in June with tariffs having a mild impact on goods prices offset by continued softness in services.

Wednesday: UK CPI inflation

Our thoughts: UK inflation is expected to remain steady at 3.4% although sticky services inflation is anticipated to slow which should support rate cuts from the BoE in the second half of this year.

Wednesday: China Q2 GDP

Our thoughts: Economic growth in China is expected to show solid momentum in the second quarter supported by softening of trade tensions with the US and stimulus.