Market Commentary 7th July 2025 – from Charlie Hancock

Purchasing Managers’ Index (PMI) data for the UK in June indicated that the pace of growth in the services sector reached a 10-month high. New orders increased for the first time in three months. The manufacturing sector continued to experience declining activity, however, the pace of deterioration was slower than it was during the previous month.

The Bank of England (BoE) reported that new mortgage approvals rose to 63,032 in May, which was higher than expected. The data pointed to robust demand in the property market, with declines in mortgage interest rates helping to boost confidence among buyers.

Inflation data for the Eurozone showed that the headline rate of consumer price increases rose to 2.0% in June from the 1.9% recorded for May. Increasing prices from service businesses and energy costs were the main contributors. Labour market data pointed to a stable jobs market, with the unemployment rate moving 0.1% higher to 6.3% in May.

The president of the European Central Bank (ECB), Christine Lagarde, stated that although inflation had met the central bank’s target of 2%, more data would be required before the ECB could be confident that inflationary risks have subsided. Lagarde stated that the ECB needed to “remain vigilant”.

Investors paid close attention to developments regarding President Trump’s “big beautiful bill”, which narrowly achieved approval in both the Senate and House of Representatives. Trade deal negotiations also dominated headlines, with the Trump administration agreeing terms with Vietnam which will see a tariff of 20% imposed on all imports from Vietnam. Meanwhile, data showed that the US trade deficit widened during May, driven by a 4% decline in exports.

Labour market data pointed to continued strength despite the ongoing uncertainty regarding trade policy, with the US economy adding 147,000 jobs in June. The data was stronger than expected, with the median economist estimate being 111,000.

Economic data in China was mixed. PMI data showed that the manufacturing sector remained in contractionary territory during June, however, the data was better than expected. The services sector continued to see growth, albeit with the pace of expansion slowing from the level recorded for May. There was no notable improvement in the labour market last month, with the week’s PMI data indicating that employers in the services sector remained cautious regarding new hires.

There appeared to be little progress in trade negotiations between the US and Japan last week, despite the deadline of 9^th July approaching. Without a deal before the 9^th July, the US is set to reinstate tariffs of 24% on all imports from Japan. Negotiators in Japan continued to push for a removal of tariffs, particularly for auto exports. Meanwhile, a business sentiment survey conducted by the Bank of Japan (BoJ) showed that businesses grew more optimistic during the second quarter, however, firms held a cautious outlook for the third quarter.

The UK government was forced to abandon key plans to reform welfare spending last week, which appeared to contribute to Gilt yields rising as investors attempted to price in higher than previously expected government spending.

Eurozone government bond yields were stable across the week, with investors appearing comfortable regarding the 0.1% increase in headline inflation. The ECB signalled that it would take a cautious approach regarding any further interest rate cuts in 2025.

The week’s stronger than expected jobs report appeared to be the main driver for Treasury yields rising, with investors assuming that the data will delay any potential Federal Reserve interest rate cuts in 2025.

GBP / EUR – Current 1.1588 Previous 1.1705

The Pound declined by 0.48% against the US Dollar across the week. Against the Euro, the Pound moved 1.00% lower. Concerns around the UK’s public finances appeared to contribute to negative sentiment on the Pound among currency traders.