This past week, global markets surged into mid-July with impressive momentum. U.S. equities hit fresh all-time highs, propelled by robust earnings across financials, tech, and consumer giants. But this bullish facade masked a more nuanced reality: inflation signals reemerged, bond yields climbed, and central banks around the world braced for a complicated balancing act.

Let’s unpack this eventful week region by region.

🇺🇸 United States: New Highs and Old Worries

Wall Street’s rally continued as the NASDAQ jumped 1.5% and the S&P 500 rose 0.6%, both notching new record highs. The Dow Jones slipped slightly (-0.1%), while the Russell 2000 gained 0.2%, and S&P Midcap 400 stayed flat.

Earnings Power the Surge

Corporate earnings surprised to the upside. JP Morgan, Citigroup, PepsiCo, Netflix, and others comfortably beat forecasts. Financial sector earnings are on track for 8.6% year-over-year growth, outpacing the broader S&P 500. This suggests firms are adapting well—even thriving—despite high interest rates.

Inflation Creeps Back

The inflation specter is back. Headline CPI rose 2.7% year-over-year in June (vs. 2.4% prior). Core CPI climbed to 2.9%, fueled by tariffs and higher household goods prices. Retail sales also recovered, up 0.6% in June after May’s drop, though inflation likely inflated those figures.

Bond Market Sends a Message

The 30-year Treasury yield hit 5.07% midweek, a level not sustained since 2007, before settling at 5.0%. Investors are clearly pricing in persistent inflation risk and reassessing long-term Fed policy. Despite this, futures markets still expect two rate cuts by year-end, though not before the Fed’s September meeting. Rumors—later denied—that President Trump might fire Fed Chair Powell added short-term volatility.

The Fed’s Dilemma

With strong earnings and climbing inflation, the Fed faces a delicate path. They may adopt a “higher-for-longer” stance, using earnings resilience as justification. But political drama adds an extra layer of market risk.

🇪🇺 Europe: Mixed Signals, Subtle Strength

Markets were subdued but stable. The Stoxx 600, DAX, and CAC 40 remained mostly flat, while Italy’s MIB gained 0.58%.

Positive Economic Indicators

Eurozone May industrial production jumped 1.7% month-over-month, driven by energy and capital goods. The trade surplus hit €16.2 billion, as exports rose and imports fell. Germany’s ZEW investor sentiment index climbed to 52.7, the highest since early 2022, boosted by hopes of reduced EU–U.S. trade friction.

ECB in Focus

This week’s ECB meeting will be pivotal, with rate decisions and forward guidance under close scrutiny. Markets will watch carefully for a balance between dovish support and inflation vigilance.

🇬🇧 United Kingdom: The Stagflation Trap?

The FTSE 100 rose 0.57%, helped by a weaker pound. But economic data painted a worrying picture.

Headline CPI rose to 3.6% from 3.4%, and services inflation remained stubborn at 4.7%. Unemployment climbed to 4.7%, a four-year high, while payrolls shrank despite sticky wage growth at 5.0%. The combination of rising inflation and a weakening labor market suggests stagflation, putting the Bank of England in a bind.

🇯🇵 Japan: Politics and Pressure

Markets in Japan edged up cautiously: Nikkei 225 rose 0.63%, and TOPIX gained 0.4%.

Election Watch

This weekend’s upper house election could cost Prime Minister Kishida’s coalition its majority, raising the risk of fiscal policy paralysis and policy gridlock.

Inflation and Trade Concerns

Core CPI slowed to 3.3% year-over-year in June, mostly due to temporary energy subsidies. Exports to the U.S. and China fell, and a new 25% U.S. tariff on Japanese imports (starting August 1) adds further headwinds. Political and trade risks remain front and center.

🇨🇳 China: A Brief Bright Spot Amid Lingering Doubts

Markets gained this week: CSI 300 rose 1.09%, Shanghai Composite 0.69%, and Hang Seng 2.84%.

GDP Surprise (Sort of)

Q2 GDP rose 5.2% year-over-year, beating expectations but still slower than Q1’s 5.4%. The quality of that growth remains under scrutiny.

Property Woes Deepen

New home prices fell for a fourth straight month, and residential sales dropped 12.6% year-over-year in June—the steepest decline of 2025.

Deflation Pressure

Producer price index (PPI) fell for a 33rd consecutive month, highlighting weak industrial demand. These structural issues could delay stimulus and weigh on second-half momentum.

What to Watch: Key Macro Events (July 21–25, 2025)

United States

• Tue, July 22: Fed Chair Powell speaks – listen for any shifts in tone

• Wed, July 23: Existing home sales (June)

• Thu, July 24: Weekly jobless claims

• Fri, July 25: Durable goods orders (June)

Europe & UK

• Thu, July 24: ECB rate decision and press conference

• Thu, July 24: Germany GfK consumer confidence (August)

• Thu, July 24: Germany and UK PMI snapshots

• Fri, July 25: UK retail sales (June), Germany IFO business climate (July)

Five Global Market Risks to Watch

1. U.S. inflation vs Fed credibility
   Can the Fed tame inflation without derailing corporate earnings momentum?

2. ECB policy misstep
   A policy error could halt Europe’s fragile recovery.

3. UK stagflation
   Rising prices and a weakening labor market may lead to persistent low growth.

4. Japan’s political future
   An election upset could bring policy gridlock and impact stimulus measures.

5. China’s deflation and real estate weakness
   Structural challenges remain despite a Q2 GDP beat, with potential global spillovers.

FAQs

Are rate cuts still expected in the U.S. this year?
Yes. Markets still price in two cuts, likely beginning after the September Fed meeting.

What’s driving U.S. inflation now?
Tariffs and increased costs for household and recreational goods are major contributors.

Is the UK showing signs of stagflation?
Yes. Inflation remains high while employment is weakening.

Will Japan’s election impact fiscal policy?
Possibly. A loss of majority for Kishida’s coalition could lead to policy uncertainty.

Is China’s growth sustainable?
Q2 GDP beat expectations, but deep-rooted real estate and deflation issues persist.

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