The Davy Digest - 28th July 2025

Global equity indices continued to reach new highs last week, as the US finalised a trade deal with Japan – the third major deal that Trump has completed so far. The agreement reduced tariffs on Japan from 25% to 15% and included concessions around automobiles and foreign investment. In Europe, Thursday’s European Central Bank meeting was the headline event. Christine Lagarde kept rates steady at 2% and tempered expectations about future rate cuts in the face of ongoing trade uncertainty. Finally, over the weekend, the US and EU reached an agreement on trade which reduced tariffs to 15% ahead of Trump’s August 1st  negotiation deadline.  

Last week's highlights

	S&P Manufacturing PMI (24/07) – Fell into contractionary territory at 49.5 (vs 52.6 expected) S&P Services PMI (24/07) – Increased to 55.2 (vs 53.0 expected)
	ECB Interest Rate Decision (24/07) – Kept rates steady, as expected HCOB Eurozone Composite PMI (24/07) – Increased to 51 (vs 50.8 expected)
	S&P Composite PMI (24/07) – Fell to 51 (vs 50.8 expected) Consumer Confidence (25/07) – Fell to -19 (vs -20 expected)
	Japan Election Results (21/07) – Ruling coalition lost their majority, but PM Ishiba currently remains in place

This week promises to be eventful. On Wednesday, the Federal Reserve will be meeting, with Jerome Powell set to keep interest rates at 4.5% for the fifth consecutive meeting. Tariff uncertainty continues to obscure the economic picture there, but a stream of labour market and inflation data throughout the week should add some colour. On Tuesday, the Job Openings and Labour Turnover Survey (JOLTS) will be out, followed by a Q2 PCE reading on Wednesday. Additionally, on Friday, nonfarm payrolls and unemployment data will be released. In equity markets, several of the Magnificent Seven will be reporting their Q2 earnings, including Microsoft, Amazon, Apple, and Meta. Finally, in Asia, the Bank of Japan will be convening. The completion of last week’s trade deal should provide Governor Ueda with greater certainty over the economy’s direction of travel and allow the continuation of their hiking cycle later in the year.

What's on the radar

	Preliminary Q2 Gross Domestic Product (30/07) Personal Consumptions Expenditure Index (30/07) Federal Reserve Meeting (30/07) Jobs data (01/08)
	Preliminary Q2 Gross Domestic Product (30/07) Unemployment Rate (31/07)
	S&P Manufacturing PMI (01/08)
	Bank of Japan Meeting (31/07) China NBS PMI (31/07)

Chart of the moment - Reports of my death are greatlty exaggerated

Source: US Treasury, July 2025

• Despite ongoing discourse about the demise of the dollar and the selling of US assets more broadly, net foreign flows into US assets have been positive this year.
• In April, there was a reduction across foreign holdings of US equities and bonds in the aftermath of Liberation Day.
• In May, however, this trend reversed, as capital flowed back into the US despite continued concerns around their fiscal position and policy under the Trump administration.
• The global reliance on the US dollar, as well as demand for US equity exposure still remains strong.