Solid US Data Send Equities to Record Highs

For the week ending 18 July 2025

As of midday Friday, global equities were trading at record levels after the release of a series of benign US economic indicators. The yield on the 10-year US Treasury note inched up two basis points from week-ago levels to 4.43% while the price of a barrel of West Texas Intermediate crude oil advanced $0.80 to $68.30. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 19.20 from 17.5 last Friday.

MACRO NEWS

Benign inflation, solid retail sales and employment data cheer markets

While the US consumer and producer price indices showed the first signs of being impacted by rising tariff rates in June, the data were benign overall, suggesting, at least thus far, that tariff impacts are muted. Inflation expectations continue to recede, with the volatile University of Michigan year-ahead inflation expectations measure falling to a five-month low of 4.4% on Friday. Meanwhile, US retail sales rose more than expected in June, with core sales gaining 0.5%. On the labor front, weekly jobless claims fell to their lowest level since April. Overall, the US economy continues to chug along despite facing continued tariff uncertainty.

Trump floats apparent Powell trial balloon

Newswires were humming on Wednesday morning as multiple outlets reported that, according to unnamed White House officials, US President Donald Trump was likely to fire US Federal Reserve Chair Jerome Powell. The dollar and stocks fell on the reports while the yield curve steepened. Roughly an hour after the initial reports circulated, Trump said that he is not planning to fire Powell and that his dismissal was highly unlikely unless fraud is uncovered with regard to cost overruns on renovations to the Fed’s Washington headquarters. Powell defended the Fed’s management of the project in a letter to the director of the US Office of Management and Budget on Thursday. Analysts at Deutsche Bank estimate that if Powell were to be fired, 10-year yields would rise approximately 20 basis points, 30-year yields by around 45 bps, 2-year yields would fall roughly 20 bps and the dollar would decline about 6%. On Friday, Fed Governor Christopher Waller, a Trump appointee, said he would accept the chairman’s post if offered. On Thursday, Waller said he thinks the Fed should cut rates at its July meeting.

Trade talks continue as clock ticks

Trade talks between the US and its trading partners continue as the August 1 deadline approaches. President Trump announced a trade deal with Indonesia on Tuesday under which Indonesia agreed to purchase 50 Boeing jets, $15 billion in energy and $4.5 billion in agricultural commodities. US imports from Indonesia will be subject to a 19% tariff, below the 32% level posted in a letter last week. US exports to Indonesia will not be subject to tariffs. The deal is seen as serving as a template for other nations in Southeast Asia. Early in the week, Trump threatened the European Union and Mexico with 30% tariffs, calling on Mexico to do more to stem the flow of narcotics to the US and the EU to drop tariffs on US goods as well as nontariff barriers. The EU said it is readying a list of countermeasures against US tariffs if talks breakdown. Canadian Prime Minister Mark Carney acknowledged this week that it may be impossible for Canada to completely avoid US tariffs but said that the two sides are close to an agreement.

QUICK HITS

The Trump administration eased export restrictions on certain Chinese purchases of advanced semiconductors, a sign of a thaw in the US–China trade relationship.

The US Federal Communications Commission plans to ban the use of Chinese technology in submarine fiber optic cables, citing security concerns.

The unemployment rate in the United Kingdom rose to 4.7% in June from 4.6% in May, the highest level since June 2021. June consumer prices rose 3.6% year over year, up from May’s 3.4% rate.

Chinese exports rose 5.8% year on year in dollar terms in June, beating expectations as companies used a tariff truce with the US to ship goods ahead of an August deadline for a more definitive deal. 

President Trump announced this week that the US will send more weapons to Ukraine via Nato countries, with European partners footing the bill. If a peace deal with Ukraine is not reached in 50 days, Trump said the US would impose 100% secondary sanctions on Russia’s trading partners, making it difficult for Russia to sustain the war.

Amid a lull in the trade war, the Port of Los Angeles experienced record freight volume in June.

US housing starts rose a stronger-then-expected 4.6% in June while building permits rose 0.2% on the month.

Economic growth in China accelerated as trade tensions eased in the second quarter, growing 5.2% year over year.

The EU agreed to a new round of sanctions against Russia on Friday which includes cutting the G7’s price cap on Russia’s oil exports to $47.6 per barrel from $60. That would set the price 15% lower than the average market price for Russian crude oil.

Amid concerns that a poor showing by the ruling Liberal Democratic Party in upper house elections in Japan this weekend could lead to a cut in the country’s consumption tax and greater bond issuance, yields on Japan’s 30-year bond rose to a record 3.21% on Tuesday. If the election outcome leads to a spike in Japanese rates, expect spillovers into the long end of the curve in other developed markets.

The Fed’s Beige Book, prepared in advance of the Fed’s July 30 meeting showed that activity increased slightly from May to July, though uncertainty remained elevated, contributing to ongoing caution by businesses.

President Trump is expected to issue an executive order instructing federal agencies to clear the way for retirement plans to include private markets.

The US House of Representatives is expected to pass a rescission package, the first in over 30 years, clawing back $9 billion in previously appropriated Federal spending. On Thursday, the House passed a bill regulating stablecoins, sending it to the White House for Trump’s signature.

Foreign holdings of US Treasuries reached a record $9.05 trillion in May, calming concerns that foreigners are shedding US assets.

EARNINGS NEWS

With about 12 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 5.4% compared with the same quarter a year ago and down from more than 13.3% in Q1, according to data from FactSet. Blended sales rose 4.4% year over year.

THE WEEK AHEAD

Monday: US leading indicators

Tuesday: RBA minutes

Wednesday: US existing home sales

Thursday: Global flash purchasing managers’ indices, ECB meeting, US new home sales

Friday: UK retail sales, US durable goods orders

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Past performance is no guarantee of future results.

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