The week that was …
Economic round-up
UK interest rates
As widely expected, the Bank of England cut interest rates by 25 basis points to 4% at its monthly meeting last Thursday, taking the cost of borrowing to its lowest level since early 2023. The 5-4 majority was close, though, suggesting future cuts may may in jeopardy amid concerns over rising prices. Read more from the BBC here
Brokers forecast lower growth
Major brokerages, including Goldman Sachs, J.P. Morgan and Morgan Stanley, have forecast slower global growth for late 2025, blaming tariffs and geopolitical tensions for contributing to economic uncertainty. The groups’ forecasts have the US economy growing between 1% and 2% this year. Read more from Reuters here
Trump’s Fed choice
President Trump said he would nominate Stephen Miran, chairman of the Council of Economic Advisers, as an interim appointee for the newly vacant seat at the Federal Reserve. Miran, who has called for a complete overhaul of the Fed’s governance, takes over from Adriana Kugler after her surprise resignation last week. Read more from the Times here
UK construction falters
The UK construction sector saw a slump at the start of the third quarter. A fresh drop in residential building exerted a drag on the sector and UK constructors remained challenged by subdued demand conditions. The headline S&P Global UK Construction Purchasing Managers’ Index (PMI) dropped to 44.3 in July, down from 48.8 in June. Read more from S&P here
US services outlook
The ISM Services PMI for the US unexpectedly fell to 50.1 in July 2025 from 50.8 in June – well below analyst forecasts of 51.5. Seasonal and weather factors appear to have had a negative impact on business while price pressures also intensified to their highest level since October 2022. Read more from Trading Economics here
China services sentiment
China’s services activity expanded at its fastest pace in 14 months in July, according to the S&P Global China General Services PMI, which rose to 52.6 from 50.6 in June. This was the fastest pace since May last year, with an increase in new export orders contributing to rising demand. Read more from Reuters here
US jobless claims
New claims for unemployment benefit in the US ticked up to the highest level in a month last week. The data would indicate job creation is weakening and it is taking laid-off workers longer to find new employment. Read more from Reuters here
Markets round-up
US stocks push higher US stocks ended the week higher, with the Nasdaq registering a record closing high for the second straight day on Friday as technology-related shares, including Apple, made gains. The rises were fuelled by renewed optimism on interest rate cuts. Read more from Reuters here
Gold turmoil
The global gold market was thrown into turmoil last week after a US government agency indicated bullion would not be exempt from tariffs. Wall Street had expected bullion to be exempt from duties and a tariff on gold would increase the cost of importing the metal into the US. Read more from CNN here
US rate cut expectations grow
JP Morgan said it expected the US Federal Reserve to cut interest rates by 25 basis points at its September meeting, citing signs of weakness in employment data and uncertainty over the Fed nomination. Read more from Reuters here
Crypto expansion
Donald Trump has signed an executive order to open the $9tn (£6.69tn) US retirement market to cryptocurrency investments, private equity and other alternative investments such as property deals. Read more from the FT here
“According to Factset, 82% of S&P 500 companies have reported positive earnings-per-share surprises and 79% of S&P 500 companies have reported a positive revenue surprise.
Selected equity and bond markets: 01/08/25 to 08/08/25
| Markets | 01/08/25 (Close) |
08/08/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4919 | 4939 | +0.4% |
| S&P500 | 6238 | 6389 | +2.4% |
| MSCI World | 4023 | 4125 | +2.5% |
| CNBC Magnificent Seven | 363 | 376 | +5.33% |
| US 10-year treasury (yield) | 4.23% | 4.29% | |
| UK 10-year gilt (yield) | 4.53% | 4.60% |
Investment round-up
Woodford fines
Neil Woodford and his investment management company have received fines totalling almost £46m from the UK’s financial regulator. The Financial Conduct Authority (FCA) gave Woodford a personal fine of £5.9m and banned him from holding senior manager roles and running funds for retail investors. Woodford Investment Management was fined £40m.
IA flows data
Net inflows into UK retail funds hit £438m in June, marking a more positive end to the first half of 2025. Net fund inflows hit £2.9bn in H1 2025, with investors taking advantage of market volatility, according to data from the Investment Association (IA). According to the trade body, this backdrop “polarised investor behaviour, with some taking advantage of market volatility through April and ‘buying the dip’, boosting sales to North American equities”.
Square Mile removes ratings
Square Mile Investment Consulting and Research has removed its ratings for three Schroders funds following the departure of the firm’s head of value equities, Nick Kirrage. The Schroder Income, Schroder Income Maximiser and Schroder Recovery funds saw their ‘A’ ratings removed.
Royal London boost
Royal London has posted net inflows of £4.1bn – boosted by the £4.6bn multi-asset mandate it received from St James’s Place earlier in 2025. The provider saw gross inflows rise to £22.4bn, up from £16.3bn in the first half of 2024.
FCA simplifies climate disclosure rules
The FCA has pledged to simplify its rules on climate disclosures. The watchdog found that, while the rules had made firms more transparent with clients and consumers, they had also encountered challenges with the availability of data.
… and the week that will be
Inflation trends
The recent rally in markets could look increasingly fragile over the next week, as investors receive fresh insight into US inflation trends. The monthly US consumer price index report is due on Tuesday (12 August) and data showing higher-than-expected inflation could undermine the growing expectation for impending interest rate cuts and dent market enthusiasm. Read more from Reuters here
US/China deadline
The deadline on US/China reciprocal tariffs is due to expire on Tuesday (12 August) and negotiations are going down to the wire. President Trump had agreed to a 90-day truce that reduced tariffs from levels as high as 145% in April. Read more from the FT here
The week in numbers
UK GDP: Consensus expectations for the preliminary reading of UK GDP growth in the second quarter of 2025 are 0.7% year-on-year and 0.3% quarter-on-quarter – down from 1.3% and 0.7% respectively.
US inflation: US prices, as measured by the consumer price index, are forecast to rise 2.7% year-on-year in July – in line with the previous month – and rise 0.2% month-on-month, down from 0.3% in June.
Japan GDP: Consensus expectations for the preliminary reading of Japan GDP growth in July see a rebound to 1.2% from -0.2% year-on-year, and an increase to 0.3% from 0.1% month-on-month.
UK unemployment: Consensus forecasts have the UK unemployment rate falling to 4.6% in June, from 4.7% the month before. Average hourly earnings growth is expected to hold steady at 5% for the three months to June.
US retail sales: Consensus expectations are for retail sales in the US for July to rise 0.4% month-on-month, down from 0.6%.
US consumer sentiment: The preliminary August reading of the Michigan index of US consumer sentiment is expected to fall to 60.5 from 61.7 the month before.
In focus: Q2 earnings clues
A lot was resting on the Q2 earnings data emanating from the US and elsewhere. At a time when tariffs could weigh on corporate profitability, the recent rally in US markets needed strong earnings growth to support it. For Europe, meanwhile, it was a test of resilience in the face of American economic belligerence. So what insights – if any – did the data offer into the likely financial market performance for the remainder of the year?
The first notable trend to emerge was the gap between the US and Europe. The impact of tariffs was felt more acutely by European companies than their US counterparts and, coupled with a stronger euro, saw earnings fall behind. The Financial Times cites Bank of America data indicating that, with more than half of the companies in the Stoxx Europe 600 index having reported earnings, the benchmark is on track for zero earnings growth, compared with a year ago.
According to Bank of America strategists, European companies had set a relatively low bar for earnings – yet failed to meet even these unambitious expectations. There has been weakness in a number of key European sectors – for example, carmakers have struggled with the tariff problems, with Volkswagen and Mercedez-Benz issuing warnings about the impact. The luxury goods sector has also had its issues, hit by sharp declines in spending from American tourists in Europe and by Chinese tourists in Japan.
A further weak spot was Danish pharmaceutical giant Novo Nordisk – until recently the largest stock in Europe. The group’s shares fell almost a quarter after it warned it was losing market share in its weight-loss drugs to rival Eli Lilly and was also battling copycat drugs. That said, its shares have come back a little after disappointing results for a pill form of Eli Lilly’s weight-loss drug.
In contrast, US earnings look far more rosy, justifying the recent rally in US markets and, in particular, the tech sector outpaced expectations. “Most US second-quarter earnings beat expectations, notably the AI-dominated technology firms including Meta Platforms, Alphabet (Google) and Microsoft, while Nvidia saw its market cap push past $4tn,” says John Husselbee, head of multi-asset investment at Liontrust.
“Notable exceptions were Tesla and Apple but, generally, the positive impact of AI on earnings was re-affirmed and duly attracted investors’ capital, pushing the US market to new record highs.”
The convergence story – where the Magnificent Seven earnings cease to outpace those of the rest of the S&P 500 – remains in place, but the point of convergence keeps being pushed out.”
According to Factset, 82% of S&P 500 companies have reported positive earnings per share surprises and 79% of S&P 500 companies have reported a positive revenue surprise. As of 1 August, the average blended earnings growth rate for the S&P 500 was 10.3%. Equally, the group says analysts slightly increased earnings-per-share estimates for S&P 500 companies for the third quarter on the back of second-quarter results.
Nevertheless, there were some significant disparities between sectors. The energy sector saw the strongest revisions for Q3 expectations, with an average increase of 3.8%. Communication services and technology companies also saw their earnings revised higher. Financials were strong in both the US and Europe. At the bottom of the heap was healthcare, where earnings were revised lower by 5.2%. Industrials and consumer staples were also weak.
Many investors have focused on technology, with the latest results season apparently justifying the recent rally in the sector’s shares. “Among the likes of Alphabet, Amazon and Microsoft, the big theme was continued monetisation of cloud solutions,” says George Salmon, a senior investment analyst at Hawksmoor. “Meta reported outstanding growth too. If anything tells us how the market has changed its attitude towards AI, it is the reaction to its expanding capex plans.
“When Meta first started raising its capital spending plans, the market worried about what the pay-off would be. Meta’s ability to monetise AI has justifiably increased the market’s confidence and, these days, the reaction is to ask why Zuckerberg has stopped short of writing a bigger cheque in order to forge ahead in the AI race.”
Salmon warns, however, that “valuation has also become more demanding as the market has recovered from the sharp correction in the spring.” For her part, Lori Calvasina, head of US equity strategy at RBC Capital Markets, points out that the convergence story – where the Magnificent Seven earnings cease to outpace those of the rest of the S&P 500 – remains in place, but the point of convergence keeps being pushed out.
In reality, not a lot has changed. The US technology sector continues to be supported by strong earnings – with a few notable exceptions – but investors are paying a high price for that growth.”
“In April 2024, the consensus forecast was for convergence between these two groups to occur in late 2024 or early 2025,” she says. “That did not pan out, however, and by February 2025, the convergence moment had been pushed out to Q3 2025. Now it’s been pushed out to Q1 2026, according to the latest consensus forecasts.”
Calvasina also points to the healthcare sector being hit by political machinations. “The White House is seeking to impose lower prices on many drugs, which together with the possibility of tariffs impacting the sector, has turned sentiment against the pharma groups,” she explains. “In addition to these factors, some medtech companies have been hurt by the federal research budget cuts.” Even so, with valuations now so low, she does see opportunities in the sector.
So where does this all leave investors? In reality, not a lot has changed. The US technology sector continues to be supported by strong earnings – with a few notable exceptions – but investors are paying a high price for that growth. Other parts of the market are struggling with the uncertainty created by tariffs and, even though trade deals have been agreed, the real world outcome on earnings and profitability is not yet clear.
It suggests the rotation between the US and Europe seen over the last few months may be justified – at least until the impact of fiscal expansion starts to be felt by European companies – yet it is too early to draw any firm conclusions. Tariff deals are only just being negotiated. In due course, this set of results may come to be seen as the calm before the storm of investors starting to see the real impact of tariffs.
Read more on this from the FT here and from RBC Wealth Management here
In focus: Sting in the tale
The Bank of England cut rates by 25 basis points (bps) to 4% last week but the decision came with a sting in its tail. The cut was only passed by a majority of five to four at the meeting of the bank’s Monetary Policy Committee – and only after a second round of voting. Taking it as a sign the Bank of England is less confident on the outlook for inflation, market-watchers duly trimmed their expectations of future rate-cuts.
The narrowness of the vote has spooked markets. Initially, one committee member had voted for a 50bp-point cut, with four wanting to hold and four wanting to cut by 25bps. The Bank of England’s dilemma is clear. Inflation continues to be higher than expected, while growth continues to be weak. It is an uncomfortable balancing act.
In its post-meeting report, the Bank said: “Inflation has increased temporarily this year. This is partly because of increases in energy prices, in food prices and in some regulated prices such as water bills. Inflation is likely to rise slightly further to 4% by September. We expect inflation to fall back to the 2% target after that. But there are risks around this path.”
That 4% level was higher than previously forecast. Labour market conditions appear to be softening, which could bring down demand and reduce inflationary pressures. On the other hand, food price inflation has proved persistently high and continues to weigh on policymakers.
While any rate cut should be welcome, few believe it will have a meaningful impact on mortgage rates, economic growth or the government’s finances. “An interest rate cut does not help Rachel Reeves with the black hole in the country’s finances because it was already baked into the OBR’s economic forecast in March,” observes Laith Khalaf, head of investment analysis at AJ Bell.
“There is now probably only one interest rate decision before the Budget where a cut could provide a windfall for the chancellor, and markets are pricing in very little chance of any action from the Bank of England in September.
“The cut in interest rates will also not move fixed-rate mortgages down that much – again because it was already baked into prices. If anything, the decision may push new fixed mortgage offers up a touch because so many of the rate-setting committee voted to keep rates on hold.”
As with so many areas of the UK economy, the data keeps moving in the wrong direction. From greater tariff certainty to slowing price pressures, there are factors that could turn in the Chancellor’s favour in the third quarter – though investors have learned not to be too optimistic.
