The Davy Digest - 7th July 2025

The S&P 500 and Nasdaq hit all-time highs last week following a stronger-than-expected US jobs report released on Thursday. President Trump’s “big, beautiful bill” was passed by the US Senate and House of Representatives which is expected to add $3.4trn to the US deficit over the next decade. ISM Manufacturing and Services PMI also came in better than expected, while unemployment remains muted. In the Eurozone, inflation increased slightly to 2%, meeting the ECB’s target, while inflation in Germany also fell in line with targets in June. Elsewhere, UK government bonds rebounded on Thursday after PM Keir Starmer affirmed that Rachel Reeves would remain chancellor for a “very long time to come” and backed fiscal rules. This reassurance followed a sharp sell-off in gilts and the pound on Wednesday, after Starmer failed to support Reeves in the House of Commons. Lastly in China, both NBS and Caixin Manufacturing PMIs improved since May while the Caixin Services PMI was less than expected.

Last week's highlights

	ISM Manufacturing PMI (01/07) – Up to 49 in June vs 48.5 previous. ISM Services PMI (03/07) – Improves to 50.8 in June, more than expected. Nonfarm Payrolls (03/07) – Increased by 147k in June vs 106k expected.
	Germany Inflation (30/06) – Unexpectedly fell to 2%, reaching the ECB’s target. Eurozone Inflation (01/07) – Edged up to 2% in June vs 1.9% previous.
	BoE’s Governor Bailey speech (01/07) – Signalled a potential slowdown in gilt sales by the Bank of England, prompting investors to buy long-term UK government bonds.
	China NBS Manufacturing PMI (30/06) – Improved slightly to 49.7 in June. China Caixin Manufacturing PMI (01/07) – Increased from 48.3 to 50.4 in June. China Caixin Services PMI (03/07) – Dropped to 50.6 in June vs 51 expected.

Looking forward to this week, the minutes of the Federal Open Market Committee will be released on Wednesday, having held rates steady at its last meeting. Elsewhere, investors will see retail sales figures for the Eurozone and the UK. China’s inflation figure for June will also be released, having fallen by 0.1% year-on-year in May.

What's on the radar

	FOMC Minutes (09/07) Initial Jobless Claims (10/07)
	Retail Sales (07/07)
	BRC Retail Sales (07/07)
	Reserve Bank of Australia Interest Rate Decision (08/07) China Inflation (09/07)

Chart of the moment

Getting off defence

Source: NATO, Davy as of 04/07/2025. Figures are 2024 estimates.

• At the 2025 NATO Summit in The Hague, NATO members committed to spending 5% of GDP annually on defence by 2035, a significant hike from the previous 2% target.
• Of the 5% figure, 3.5% will go towards core defence spending on troops and weapons, while the remaining 1.5% can be allocated towards "defence-related expenditure”.
• All NATO members have backed the 5% target, although Spain stated it can fulfil its obligations without reaching the spending goal.