The most significant news last week was that headline consumer price inflation (CPI) in the US for July came in below expectations, at 2.7% year-on-year. The positive data release triggered a strong reaction in markets, with both major US indices, the S&P 500 and Nasdaq, hitting record highs last Tuesday. They both gained 1.1% and 1.4% respectively over the day.
Elsewhere, there was positive news for global trade last week as the trade truce between the US and China was extended for a further 90 days. It was also publicly announced that there would be no import tariffs on gold entering the US.
The positive market sentiment from the US spread across global markets. Last Tuesday there were record highs for both Japan’s Nikkei 225 and Topix indices, each surging as much as 2.2% and 1.4% respectively. The FTSE 100 reached a record high and its highest ever close at 9,172 last Thursday, whilst European benchmark indices also posted notable gains over last week.
US Equity Market:
Last week US chipmakers Nvidia and AMD signed an agreement with the US government that sees them pay 15% of the revenues generated from chip sales in China to the government. This marks the first time a US company has agreed to such a revenue sharing agreement. Both Nvidia and AMD stocks finished last Monday, down following the news. However, Nvidia bounced back overnight to hit an all-time high last Tuesday.
Over the week to Friday’s close, the S&P 500 and Nasdaq indices were both up 0.99% and 0.45% respectively. Sterling now trades around 1.35 against the US dollar.
UK Equity Market:
UK payroll employment fell for a sixth straight month in July, as businesses continue to face challenges caused by higher taxes and increased minimum wages. Despite falling employment, wage growth has not shown signs of slowing down. These contrasting movements in the labour market highlight the challenges the Bank of England face when setting the central policy rate.
Figures released last Thursday revealed that UK economic growth slowed to 0.3% in the second quarter of 2025. This figure surpassed economists’ forecasts of 0.1% but still marks a significant reduction from the 0.7% growth experienced in the first quarter of the year. The above expected performance was driven by the construction, manufacturing and services sectors.
After reaching a record high last Thursday, the FTSE 100 closed up 0.8% over the week to Friday’s close.
Inflation, Interest Rates and Bond Markets:
The US inflation figures released last week provided further uncertainty to investors regarding the trajectory of US interest rates. The lower-than-expected CPI reading last Tuesday reversed the recent decline in investor expectations for a September rate cut, which had followed the Federal Reserve’s recent decision to hold interest rates steady at 4.5%. However, a higher-than-expected Producer Price Index (PPI) figure later in the week strengthened the dollar and increased treasury yields, reflecting reduced expectations for an interest rate cut.
The US treasury market has been quiet, with what seems to be a stand-off between the effects of variable inflation and growth expectations cancelling each other out. The 2, 5, 10 and 30-year treasuries have all remained within a 30bp trading range since April.
What’s on the horizon:
European and UK investors await inflation data due this Wednesday, each weighing up the likelihood of interest rate cuts in September.