Stocks, Yields Slip on Weak US Jobs Data

For the week ending 1 August 2025

As of midday Friday, despite solid earnings from US megacap tech companies, global equities were lower on the week amid modestly stagflationary US economic data. The yield on the US 10-year Treasury note slid 18 basis points from a week ago to 4.23%. The price of a barrel of West Texas Intermediate crude oil rose $2.50 to $68.70 on the potential for US secondary sanctions on Russian oil. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 19.60 from 18.10 last Friday.

MACRO NEWS

US payroll growth slows sharply

Nonfarm payrolls grew a smaller-than-expected 73,000 in July while the prior two months’ totals were revised down sharply, by a total of 258,000. The unemployment rate edged up 0.1% to 4.2%. Yields tumbled on the news, with traders upping their bets for Fed rate cuts later this year. The US dollar and equities also fell on the news. Expect President Donald Trump’s pressure campaign on Federal Reserve Chair Jerome Powell to lower rates to intensify, if that’s possible.

Fed holds rates steady, in no rush to cut

For the first time since 1993, two Federal Reserve Board governors, Christopher Waller and Michelle Bowman, dissented from the majority Federal Open Market Committee by voting for a 0.25% cut to the 4.25% to 4.5% fed funds target range. Despite the pair’s dovish lean, Chair Powell was more hawkish than expected during a post-meeting press conference, saying that the economy is not performing as though restrictive monetary policy is holding it back inappropriately. Odds of a September rate cut fell after the presser. Powell said that the Fed is now focused on tariff impacts on core goods prices, though he noted that the effects may be a one-time price adjustment that the Committee may look through. He said, given changes in labor market supply and demand, the Fed is focused more on the unemployment rate than on changes in the level of nonfarm payrolls. On Friday, Bowman and Waller issued separate statements defending their votes, saying the FOMC should look through modest one-time tariff-related inflation upticks, warning there are risks in waiting too long to ease policy rates amid signs of weakening labor demand.

US trade deals take shape

Last week’s trade agreement with Japan set the template for multiple deals announced this week just before the 1 August deadline, including with the European Union and South Korea. The frameworks includes a 15% baseline tariff and commitments to make investments in the US while pledging to purchases large quantities of US energy. The EU promised to invest $600 billion in the US while South Korea has committed to $350 billion. Europe is slated to purchase $750 billion in US energy over the next three years while South Korea has agreed to $100 billion worth. European aircraft are exempt from US tariffs. Trump granted a 90-day extension to Mexico under existing tariff structures while talks continue and is expected to do the same for China. Brazil has been hit with 50% tariffs, though aircraft, energy and orange juice are exempted. India is faced with 25% tariffs and potential penalties linked to imports of Russian oil and military gear. Indian-made iPhones will be exempt from levies. Trump said this week that striking a deal with Canada will be difficult due to its support for a Palestinian state. Imports from Canada that are non-compliant with the USMCA will be tariffed at 35%.

Thursday evening, the White House announced tariff rates for countries without an agreement with the United States, ranging from 10% for the Falkland Islands to 41% for Syria. Switzerland will face a surprisingly high 39% tariff rate. The levies are set to take effect on August 7.

US grew faster than expected in Q2

A first look at Q2 US GDP showed that the economy grew a faster-than-expected 3% as the US posted a smaller-than forecast June trade deficit of $86 billion, more than $10 billion lower than the month before. While the headline figure was flattering, consumer spending was tepid, up just an annualized 1.4%. The economy contracted at a 0.5% annual rate in the first quarter as importers rushed to stock shelves ahead of Liberation Day. Those flows reversed in Q2. 

QUICK HITS

The last piece of the US inflation puzzle for the month of June fell into place this week as core rose 0.3% month over month and 2.8% year over year. The year-over-year reading was slightly firmer than expected.

Global manufacturing purchasing managers’ indices were mixed in June.

Trump stepped up his pressure campaign on the Fed, urging the Board of Governors to take control from Jerome Powell and cut rates.

China’s politburo met this week but did not authorize additional stimulus, instead focusing on reducing industrial overcapacity to fight deflation.

President Trump said this week that Russia has until August 8 to agree to a ceasefire with Ukraine before facing secondary sanctions.

This week, China launched its first nationwide childcare subsidy program to boost birth rates. The government will give families the equivalent of about $500 a year for each child under the age of three, state news agency Xinhua said on Monday.

The International Monetary Fund raised its global growth outlook to 3% in 2025 from its April forecast of 2.8%. The US outlook was raised to 1.9% from 1.8%, the eurozone to 1% from 0.8% and China to 4.8% from 4%.

The JOLTS job opening measure declined to 7,437,000 in June from 7,712,000 in May. The job openings rate fell to 4.4% from 4.6% and the quits and layoff rates were steady at 2% and 1%, respectively.

The Trump administration this week announced it will reduce greenhouse gas regulations, reversing many Obama-era emissions rules.

Eurozone GDP grew a stronger-than-expected 1.4% annualized rate in Q2.

The Bank of Canada held rates steady at 2.75% on Wednesday. It said it expects inflation to moderate and could cut rates further if conditions warrant.

The Bank of Japan held its policy rate steady at 0.5 but raised its inflation forecast for the fiscal year to 2.7% from 2.2%, fueling speculation that rate hikes lay ahead now that trade uncertainty has diminished.  

Trump imposed a universal 50% tariff on imports of semi-finished copper products but excluded refined copper.

The US employment cost index was unchanged in Q2, growing 0.9%.

To help narrow the US budget deficit, the US Commerce Department is considering an overhaul of the US patent system. Officials are discussing charging patent holders 1% to 5% of their overall patent value, a shift that could dramatically increase fees, the Wall Street Journal reported.

EARNINGS NEWS

With about two-thirds of the constituents of the S&P 500 Index having reported for Q2 2025, blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around 10.3% compared with the same quarter last year, according to data from FactSet. Blended sales rose 6% year over year.

THE WEEK AHEAD

Monday: US durable goods orders

Tuesday: Global non-manufacturing PMIs, eurozone PPI

Wednesday: Eurozone retail sales

Thursday: US nonfarm productivity, unit labor costs

Friday: Canada unemployment

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.