Macro
The current global environment is characterised by high degree of uncertainty with the acronym, Trump Always Chicken Out (TACO) also known as TACO Trade, remaining popular as seen from extension of tariff pause deadline from the original 9 July 2025 to 1 Aug 2025. [1] Many countries have received letters from the White House as early as July 7 with some countries receiving a higher than expected rate. [2] However, there seems to be trade deal optimism as the August 1 deadline approaches after Mr Trump announced a significant trade framework with Japan resulting in a reduction of tariff rate to 15%. [3]
Looking at the U.S., the global trade war is beginning to impact the U.S. economy resulting in the first quarterly contraction of the U.S. economy of 0.5% in Q1 2025 and rising inflation. [5] However, the increase in U.S. underlying inflation was less than expected for five months straight with the June core CPI rising 0.1% less than estimated. [6] The contained inflation tells us that the economic impact of tariff appears to be relatively muted and that the U.S. economy remains robust enough to avoid a drastic downturn. [7]
In Europe, the euro zone economy appears to be gradually regaining momentum with the recession in the manufacturing sector coming to an end and the growth in the services sector accelerated slightly in July. The Hamburg Commercial Bank’s preliminary composite euro zone Purchasing Managers’ Index which is seen as a good guide to growth rose to an 11-month high of 51 points from 50.6 in June. Furthermore, inflationary pressures also have eased with the input prices index falling to a nine-month low of 56.7 from 58.1, showing an improvement in the euro zone economy. [8]
Despite this, France’s economy is in a crisis as its debt reached a historic high rose to 114% of its GDP in Q1 2025 as compared to 50% allowed under EU rules. [10] France’s prime minister has unveiled a sweeping plan to restore its economy including removing two holidays from the calendar and boosting production. [11]
Looking at Asia, there is a term gaining prominence in China which is “anti-involution” which is to prevent intense, self-defeating competition. [12]
China has been experiencing deflation but there are signs of improvement with June CPI reaching 0.1% in June, turning positive for the first time since January. It has also reported better-than-expected economic growth for Q2 2025 with GDP expanding 5.2% as compared to the average prediction of 5.1%. [14]
In Japan, it recently held its election and it was the first time since 1955 for the Liberal Democratic Party along with partner New Komeito to lose its majority in the House of Representatives despite remaining the nominal government, potentially increasing the political instability in Japan. [15]
Equities
The equities market has quickly recovered with the S&P 500 reaching record highs from the April 2, Liberation Day sharp declines and extreme volatility. The beta factor in the U.S. market has also recorded one of the best quarterly performers ever, delivering a 24% return signalling strong preference for high-risk stocks. [17] One notable thing happening in the U.S. stock market is the return of meme stock mania with companies like Opendoor Technologies seeing its shares exploding more than 430% in just one month.[18]
In the European Stock Market, European stocks have also outperformed their US peers by the biggest margin on record in dollar terms during the first half, showing signs that it is staging a comeback after more than a decade in the doldrums.
Although profit growth in Europe may not be as strong as in the US, the European stocks remain undervalued, and with the increase in dividend and buybacks, it will continue to make the region attractive. [21]
In Asia, the Hang Seng Index continues to surge and reaching its highest level in three and a half years on 22nd May 2025. Despite the recent rally, the valuation of the Hong Kong equity market is still not expensive and with AI continuing to be one of the key investment themes in the market. [22]
Globally, a key theme that continues to hold is the frenzy in cryptocurrency-related stocks. With many notable developments in the cryptocurrency space from U.S. House passing several cryptocurrency bills such as the GENIUS Act to Bitcoin hitting all time high of $123,091.61 as of 28th July 2025, cryptocurrency-related stocks continue to outperform with companies like Coinbase Global seeing a return of 11.75% in the past one month. [23]
Fixed Income
The U.S. Federal Reserve continues to keep interest rates unchanged in the 4.35%-4.5% and is expected to keep on holding for at least till September as there are still no signs of significant stress building in the U.S. labor market. [24]
As of 22nd July 2025, the shorter-term U.S government bonds are providing yield lower than what it provided one year ago signalling expectations of interest rate cuts in the near term. However, the longer-term treasury yields are higher as compared to one year ago as investors see the US as riskier proposition especially with ballooning federal debt. [26]
In Europe, the European Central Bank has kept rates unchanged at 2% on 24th July 2025 after cutting its rates eight times in the last nine months from a high of 4% as the eurozone economy maintains a steady pace of economic growth amid low inflation. [27]
European junk bond was particularly popular with investors with sales reaching record high as investors shift from dollar bond markets. [29]
Looking broadly, Investment-Grade (IG) credit has entered the current economic uncertainty and higher tariff with strong fundamentals. This can provide a cushion against potential downside risk and despite the tight IG spreads, overall yield remains compelling, enhancing the total return potential while offering a buffer if spread widens. Additionally, High-Yield (HY) credit is characterised by higher quality and shorter duration offering an attractive investment opportunity. [30]
Foreign Exchange (FX)
The greenback has continued to weaken resulting in it having its worst first six months of the year since 1973 as Mr Trump’s economic policies caused investors to shift away to other currencies and gold. [31] However, the downside risk of USD is expected to have limited downside risks in Q3 2025 as it supported by renewed optimism on US growth with hopes of trade deals and potential fiscal boost from tax cuts. [32]
In Europe, one of the most notable developments is Bulgaria set to adopt the Euro on 1st January 2026 after EU gave the final green light, switching from the Lev after 19 years since it joined the EU. [33]
The euro has been strengthening not only against USD but also against other major currencies including Japanese Yen and more, telling us that its strength could be more than just a reflection of the dollar’s weakness. [35]
In Asia, the Hong Kong Monetary Authority (HKMA) has intervened in the FX market for six times since late June to maintain its currency peg against the USD at HK$7.75 to HK$7.85. [36] This has raised the concern on whether local authorities will sacrifice its FX stability to allow interest rates to fall even further to boost its economy especially its property market which has been languishing since 2021. [37]
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Source:
[1] The popularity of TACO remains high, and the “doom loop” may quietly be coming! and Tariff deadline extends as Trump’s trade talks falter | East Asia Forum
[2] 25% on Japan, Malaysia; 40% on Laos: Trump’s tariff letters to Asia add pressure for deals by Aug 1 | The Straits Times
[3] Trump announces ‘perhaps the largest deal ever made’ | The Independent
[4] CPI Shows US Inflation Sped Up in June as Trump’s Tariffs Pushed Up Prices – The New York Times
[5] United States GDP Growth Rate
[6] US CPI Report June 2025: Core Inflation Rises Less Than Expected – Bloomberg
[7] August 2025 – in a nutshell | LGT
[8] Euro zone business activity growth hits 11-month high in July, PMI shows
[9] France’s Record National Debt in 2025: A 30-Year High
[10] After years of overspending, France wants to slash public holidays to tackle ‘debt’ curse – The Business Times
[11] French PM unveils radical plan to tackle ‘deadly danger’ of national debt
[12] “Anti-involution” — Phrase of the Week – by Andrew Methven
[13] Chinese inflation turned positive in June, but deflationary pressures remain | snaps | ING Think
[14] Q2 GDP: China posts better-than-expected 5.2% growth in the face of ongoing US trade war | CNN Business
[15] Ishiba’s LDP Coalition Loses Majority in Japan’s Upper House Election: Smaller Parties Make Gains in Fragmented Landscape | Nippon.com and Asia FX Talk – Political uncertainty in Japan – MUFG Research
[16] SPX 6,363.36 ▲ +0.07% Unnamed
[17] Global Equity Views 3Q 2025 | J.P. Morgan Asset Management
[18] Is Opendoor Stock a Buy at New 52-Week Highs?
[19] Europe Stocks and Currency Outperform US as Markets Stage Comeback – Bloomberg
[20] Europe Stocks and Currency Outperform US as Markets Stage Comeback – Bloomberg
[21] Europe Stocks and Currency Outperform US as Markets Stage Comeback – Bloomberg
[22] HSI rallies to highest level in 3.5 years -ChinaDailyHK.com
[23] Crypto stocks rise as U.S. House passes stablecoin legislation – 매일경제 영문뉴스 펄스(Pulse) and Yahoo Finance – stock market live, quotes, business and finance news
[24] Fed to keep rates on hold at least until September as inflation risks linger | Reuters, Fed’s rate-cut delay intact as inflation fears override Trump pressure | Reuters and 30-Year Treasury Yield Jumps to 4.96% despite “Solid” Auction, Long End of Yield Curve Steepens, Mortgage-Rate Spread Historically Wide | Wolf Street
[25] U.S. treasury yield curve 2025| Statista
[26] What’s going on with the 30-year Treasury yield? and U.S. treasury yield curve 2025| Statista
[27] European Central Bank keeps interest rates on hold despite sluggish growth | European Central Bank | The Guardian and European Central Bank leaves key deposit rate unchanged at 2% | Euronews
[28] European junk bond sales hit record as investors cut US exposure – Financial Times
[29] European junk bond sales hit record as investors cut US exposure – Financial Times
[30] Market Know-How 3Q 2025 – Goldman Sachs Asset Management
[31] Why is the US dollar falling by record levels in 2025? | Debt News | Al Jazeera
[32] Investment Outlook Q3 2025: Tap into Asia’s domestic resilience | HSBC Private Bank
[33] Bulgaria becomes 21st member to adopt euro after EU green light
[34] EURUSD 1.17504 ▲ +0.02% Unnamed
[35] As the Dollar Slides, the Euro Is Picking Up Speed – The New York Times
[36] Hong Kong fights carry trade pressure with US dollar sales to maintain currency peg | South China Morning Post
[37] HKD/USD: Why Is Hong Kong Dollar Pegged to US Dollar, Why It Matters – Bloomberg
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