The week that was …
Economic round-up
UK inflation
UK inflation edged higher in June, hitting 3.6% – its highest level since January 2024. Rising prices for food, clothing, air and rail fares pushed the Consumer Price Index (CPI) higher, while a lower drop in fuel prices also contributed. Read more from the BBC here
US inflation
The US CPI increased 0.3% month-on-month in June, putting the 12-month inflation rate at 2.7%. This was in line with expectations although there were mixed signals on whether tariffs were feeding through into the inflation data. Read more from CNBC here
China GDP
China’s economy expanded by 5.2% in the second quarter – well ahead of expectations – with significant strength shown in industrial output. At 4.8%, however, retail sales growth was behind expectations. Read more from CNBC here
UK employment
UK employers cut headcount by 25,000 in May – well under the Office for National Statistics’ previous estimate of 109,000. Wage growth eased to 5% in May, down from 5.3% in April – one factor that could pave the way for a rate cut in August. Read more from the FT here
US retail sales
US retail sales increased 0.6% in June, rebounding from a 0.9% drop in May, according to the Commerce Department’s Census Bureau. Sales had been expected to rise only 0.2% so this seems likely to keep the Federal Reserve on hold for the time being. Read more from Reuters here
Japanese inflation
Japan’s core inflation data started to cool in June, dropping to 3.3%, from 3.5% in May. This is the 39th month in a row that inflation has run above the Bank of Japan’s 2% target. Read more from CNBC here
US consumer sentiment
US consumer sentiment improved more than expected in July, with the University of Michigan’s Consumer Sentiment Index rising to 61.8 from a final reading of 60.7 in June. Economists polled by Reuters had forecast the index would increase to 61.5. Read more from Reuters here
Markets round-up
US dollar improves …
The US dollar has steadied after its worst start to the year since 1973, rising 1.6% so far this month – its first monthly gain of 2025. The resilience of the US economy is prompting some investors to reverse their bearish bets on the currency. Read more from the FT here
… but concerns persist
The Bank of England has asked some lenders to test their resilience to a US dollar shock, suggesting that, in spite of the recent upturn in the US currency, the Trump administration’s policies risk eroding trust. Read more from Reuters here
Central banks buying gold
In response to geopolitical instability and worries over fiscal sustainability, almost half of central banks expect to raise their gold holdings over the next three years, according to the annual Invesco Global Sovereign Asset Management study. Read more from the Global Treasurer here
Chevron agrees takeover of Hess
Chevron agreed a $53bn takeover of Hess on Friday, giving it access to one of the largest oil discoveries in decades. Attempts by rival ExxonMobil to block the deal in a landmark arbitration case were dismissed. Read more from the FT here
Crypto gains
The crypto sector’s market value hit $4tn (£2.97tn) on Friday, according to CoinGecko, driven by rising optimism, regulatory clarity and institutional inflows. Read more from Reuters here
“Should investors assume, as the man himself may have done, that Donald Trump is a genius, who has raised new taxes from around the world without impacting US consumers?
Selected equity and bond markets: 11/07/25 to 18/07/25
| Markets | 11/07/25 (Close) |
18/07/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4857 | 4889 | +0.7% |
| S&P500 | 6260 | 6297 | +0.6% |
| MSCI World | 4047 | 4066 | +0.5% |
| CNBC Magnificent Seven | 351 | 360 | +1.9% |
| US 10-year treasury (yield) | 4.41% | 4.42% | |
| UK 10-year gilt (yield) | 4.63% | 4.68 |
Investment round-up
Leeds reforms
Rachel Reeves has launched a range of financial services reforms in a bid to unlock retail investment and cut red tape. The Chancellor said the reforms aimed to position the UK as a top financial services destination by 2035, to increase exports and create skilled jobs.
Evelyn MPS trims US
Evelyn Partners has trimmed its US equity exposure in favour of global equity funds for its sustainable MPS, describing the outlook for the US market as “increasingly unpredictable”. New holdings include Sparinvest Ethical Global Value and Brown Advisory US Sustainable Value, while holdings in FTGF Clearbridge US Equity Sustainability Leaders and Octopus Renewables Infrastructure were sold.
Parliament criticises FCA
The Financial Conduct Authority has defended its work on speeding up the firm authorisation process and cutting down on industry costs against criticism in Parliament. The UK regulator pointed to the introduction of faster targets for individuals and businesses seeking authorisation, with new firm approvals and variations of permission applications to be completed in four months instead of the current six.
Equal-weighted S&P ETF from L&G
Legal & General has launched the L&G S&P 100 Equal Weight UCITS ETF. The fund, which has a total expense ratio of 0.19%, will track 100 major US blue-chip companies across multiple industries, as a sub-set of the S&P 500 index.
… and the week that will be
Q2 earnings season – continued
Corporate earnings are again likely to be in the spotlight this week, set against simmering concerns about president Trump’s tariffs and his pressure campaign against the Federal Reserve. Bit-tech, financials and industrials are all due to report this week. Coca-Cola is due to report earnings on Tuesday; Google parent company Alphabet and carmaker Tesla are scheduled to release financial results on Wednesday; and Intel Corp. Deutsche Bank and Nasdaq will be reporting on Thursday. Read more from Marketwatch here
ECB rate cut unlikely
While further interest rate cuts by the European Central Bank are unlikely at Thursday’s meeting, investors will be looking for signs policymakers are worried about the strength of the euro. The ECB has signalled it is nearing the end of its easing cycle and traders in swaps markets are putting a more than 90% chance on a hold this time around. Read more from the FT here
The week in numbers
ECB rate decision: Rates are widely expected to be held at 2.15% at this Thursday’s meeting of the European Central Bank.
UK business sentiment: Consensus expectations for the July flash reading of the UK’s services PMI are for a fall to 52.5 from 52.8. The equivalent reading for the manufacturing PMI is expected to rise to 48.5 from 47.7.
UK retail numbers: Consensus forecasts have UK retail sales rising 2% month-on-month.
US business sentiment: Consensus expectations for the July flash reading of the UK’s manufacturing PMI are for a rise to 53 from 52.9. The equivalent reading for the services PMI is expected to fall to 52.7 from 52.9.
US initial jobless claims: Initial jobless claims in the US for the week ending 19 July are expected to rise to 225,000.
In focus: US inflation riddle
“The increase in US inflation was expected but the causes are unclear. Time will tell if it is tariff price increases coming through or a resilient US consumer and economy.” Lothar Mentel, CEO, Tatton IM
The US CPI data for June left investors scratching their heads. Yes, higher tariffs should make higher inflation an inevitability – and there are clear signs there is inflationary pressure in certain parts of the US economy – yet there is not enough evidence to say so definitely. So does that mean the impact of the Trump tariffs may not be as bad as feared – which now seems to be the market’s view – or are the real effects still to come?
The conundrum comes in a week where the Financial Times reports the US government has raised almost $50bn (£37.2bn) in tariffs, noting US revenues from customs duties hit a record high of $64bn in the second quarter – $47bn more than over the same period last year, according to US Treasury data.
It is not clear whether that bonus will be paid for elsewhere – in corporate earnings, for example, or higher consumer prices. The upcoming corporate earnings season will show whether US companies are feeling any pain, while the inflation data should show whether consumers are hurting. June’s data suggests they are not – yet.
Headline CPI inflation for the US in June came in at 2.7%, against consensus expectations of 2.6% and up from 2.4% in May. Core inflation – which excludes the more volatile food and energy prices – was slightly more encouraging at 2.9%, versus 2.8% in May and slightly below consensus expectations.
Should investors assume, as the man himself may have done, that Donald Trump is a genius, who has raised new taxes from around the world without impacting US consumers? It may be a little too soon to draw that conclusion. While there is some evidence international brands are looking to spread the impact of cost increases across global markets, the inflation statistics suggest at least some of the cost is being borne by US consumers.
While any tariff-induced boost to inflation is likely to be short-lived, with higher tariffs being announced it would be wise for the Fed to remain on the sidelines for a few more months at least.”
As an example, the BlackRock Investment Institute points to tariff-driven price increases in household appliances, with prices now rising at a 26% annualised rate. It also highlights early signs of price rises in recreational products such as video and audio equipment.
“We believe the impact is mostly still to come and will build up after companies have exhausted the inventories they imported to get ahead of tariffs,” the organisation suggests. “It will also be important to track who will ultimately bear the cost of tariffs – consumers, companies or exporters.”
Seema Shah, chief global strategist at Principal Asset Management says tariffs typically take several months to feed through to inflation data, adding: “The significant frontloading of imports implies few goods may have been subject to tariffs yet. And while any tariff-induced boost to inflation is likely to be short-lived, with higher tariffs being announced it would be wise for the Fed to remain on the sidelines for a few more months at least.”
Such comments would seem unlikely to please the US president, who last week claimed “We have no inflation” and continues to pile pressure on Federal Reserve chair Jerome Powell. The last week alone saw Trump apparently ready to fire Powell, then say he had no plans to get rid of him – before adding the unsettling caveat: “Unless he has to leave for fraud.”
In the view of Lindsay James, investment strategist at Quilter: “Trump continues to bang the drum for the strength of the US economy and the need for lower interest rates, but that is not what the data is suggesting. With labour markets remaining pretty solid so far, the objective of price stability would usually warrant either a hold or a hike in interest rates at the Fed.
“This is no normal presidency, however, and the constant pressure from the White House and an increasing cacophony of criticism from Trump’s political allies may be one factor creating a split at the Fed, with some members now leaning towards the more doveish – arguably jostling for favour ahead of Trump’s election of a new Fed chair.”
While markets appear to assume president Trump will soften his stance, the risk of stagflation in the US is real – especially if rising goods and services prices feed through to a tight labour market.”
Should Powell actually be replaced, inflation expectations could spike higher. There have been some suggestions he could be replaced by US treasury secretary Scott Bessent, who has done a good job pulling Trump back from some of his more market-disruptive policies and has been instrumental in stabilising US bond yields. Nevertheless, any rejig at the head of the US’s major financial institutions could prove disruptive for markets.
Plus, a new round of tariffs is looming. According to David Rees, head of global economics at Schroders, if the 1 August tariffs happen as planned, the effective US import tariff rate could jump to 24%, “potentially adding more than 1% to inflation – on top of our CPI forecast for average inflation of 3.1% through to the end of 2026 – and cutting GDP by more than 0.5%.”
Rees adds: “While markets appear to assume president Trump will soften his stance, the risk of stagflation in the US is real – especially if rising goods and services prices feed through to a tight labour market.”
Then there is the corporate earnings factor, which is likely to become clearer over the next two to three weeks as companies report and provide guidance. Not least, this may provide more clues as to where that extra $50bn is coming from – and whether the US president really has pulled off the trick of making other countries pay US taxes.
The final question is whether any of this noise really matters for markets – although it would seem likely to prove important for sentiment. US markets have shrugged off tariffs, believing Trump will either chicken out or someone else will pay or that their impact will be limited. This looks increasingly complacent – and investors may be in for a shock should the data start to turn.
In focus: Promising Leeds
The solution to creating a domestic investing culture capable of boosting the economy, capital markets and people’s long-term savings alike has long eluded UK policymakers. Last week, though, chancellor Rachel Reeves announced a number of reforms designed to boost stockmarket investment.
There will be a retail investment campaign to be run by the industry, supported by the FCA and the Treasury. There will also be work on changing the risk warnings on investment products to ensure they are not in themselves a barrier to investment.
This is welcome. Analysis by Vanguard suggests that if just 10% of the UK’s cash savings were to be invested, it would unlock some £242bn. Equally, there can be little doubt that slapping risk warnings that investors could lose all their money on every investment product acts as a deterrent. It is also inaccurate – after all, there are risks involved in a cash savings account, such as inflation, but these are not highlighted.
Welcoming the news, Chris Cummings, chief executive at the Investment Association, said: “Better communication of the returns investing brings is key if we are to empower more people to invest. The review of risk warnings is a welcome move to shift the conversation from warning to informing and we are pleased to have been asked by HM Treasury to spearhead this initiative.”
The chancellor also paved the way for targeted support, confirming a change in the boundary between advice and guidance. The details remain sketchy but this idea has been on the table for a while. Additionally, Reeves set out plans for the inclusion of long-term asset funds into stocks and shares Isas. For his part, Cummings noted the IA had “long called for” this change.
There were also moves to stem the flow of companies moving outside the UK, including changes to the prospectus regime to make it cheaper for some companies to list in London. The chancellor has quite a hill to climb in making the UK more attractive than New York, say, but it is a start.
Most investment groups agreed the reforms were needed and the criticisms, where they came, were generally that the government had not been sufficiently ambitious. “The direction of travel is encouraging but the government could be bolder,” noted Richard Stone, chief executive of the Association of Investment Companies, for example.
“The Isa regime is badly in need of simplification. We want the government to create a single investment Isa, merging the stocks and shares Isa and cash Isa. The government should also exempt share purchases within the Isa from stamp duty.”
The real test will be whether the FCA can be sufficiently flexible to allow these reforms to work and the asset managers sufficiently bold to take advantage. For some years, fund management compliance teams appear to have competed to interpret the rules in the most draconian way possible – and company management has let them do so. This ‘computer says no’ mentality will need to change.
