Market Commentary 28th July 2025 – from Naigil Johnson

UK retail sales increased by 0.9% month-on-month in June 2025, recovering from a revised 2.8% decline in May but falling short of market expectations for a 1.2% rise.

The UK Manufacturing Purchasing Managers’ Index (PMI) showed a modest improvement in July 2025, indicating a slight easing of contraction compared to the previous month. Although the uptick surpassed market expectations, manufacturers continued to report challenges, particularly in key export markets with US tariffs prompting delayed spending decisions.

In comparison, the UK Services PMI signalled a slowdown in July 2025, reflecting a softer pace of expansion compared to the previous month. The figure came in below market expectations, as service providers pointed to the fragile domestic economic conditions and increased geopolitical uncertainty as the main factors dampening demand and weakening their sales expectations.

Germany’s Manufacturing PMI showed a slight easing in the pace of contraction in July 2025, which appeared to signal stabilisation in the manufacturing sector, though the improvement was weaker than preliminary estimates. Meanwhile, the Services PMI indicated a shift into marginal expansion, with the modest improvement pointing to early signs of strengthening market conditions, slightly ahead of expectations.

Germany’s Consumer Climate Indicator pointed to a deepening deterioration in sentiment heading into August 2025, reflecting increased consumer pessimism amid persistent economic uncertainty. The decline was sharper than expected, driven in part by growing concerns over US tariffs on European goods. With the 1^st of August tariff pause deadline approaching, European Commission President Ursula von der Leyen and President Donald Trump are set to discuss trade negotiations on Sunday.

In contrast, consumer confidence in France edged higher in July 2025, up from the prior two months and slightly above market forecasts, suggesting a modest improvement in sentiment.

The US Manufacturing PMI signalled a contraction in July 2025, falling short of market expectations of an expansion and pointing to weakening conditions in the sector. In contrast, the US Services PMI showed a strong acceleration in expansion, marking the most robust growth in private services activity seen this year and significantly outperforming forecasts.

Initial jobless claims in the US fell by 4,000 to 217,000 in the third week of July, defying expectations of a rise to 227,000. This marked the sixth straight weekly decline and the lowest level since April, reinforcing signs of continued strength in the labour market following concerns earlier in the year.

The Japanese market surged following the announcement of a new trade deal between the US and Japan, which President Trump referred to as the “largest deal ever,” signalling the end of months of trade-related uncertainty between the two countries. Under the agreement, most Japanese goods entering the US will face a 15% tariff, while Japan has committed to investing $500 billion into the United States, a substantial amount given that Japan has an economy worth $4.7 trillion annually.

Regarding Japan’s economic data, core consumer prices in Tokyo’s Ku-area increased by 2.9% year-on-year in July 2025, marking a second consecutive month of easing and coming in below market expectations of 3%. Despite the slowdown, inflation remained above the Bank of Japan’s 2% target, keeping expectations for a potential rate hike later this year, with the Bank of Japan (BOJ) scheduled to meet next week to discuss its monetary policy stance.

Profits at China’s industrial firms fell by 1.8% year-on-year to 3.44 trillion Chinese Yuan (CNY) in the first half of 2025, deepening from a 1.1% decline recorded in the January–May period. The figures appeared to reflect the ongoing deflationary pressures and rising trade uncertainty, particularly in the face of broad US tariffs.

GBP / EUR – Current 1.1442 Previous 1.1540

The Pound declined against the Euro last week, falling by 0.85%. The Pound seemed to be under pressure against the Euro following speculations of a potential US-EU trade deal. Against the Dollar, the pound rose by 0.16%.