“The 3% annualised growth in US GDP in the second quarter was due to an abnormally high contribution from trade, following a drop in imports, which had risen sharply in the first quarter in anticipation of tariffs,” says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments. “Household consumption grew by just 1.4%, confirming the moderation already seen in the first quarter.” In the Eurozone, the economy avoided a contraction in the second quarter, with GDP rising by 0.1%, despite the disappearance of the support provided by exports which had risen in the first quarter prior to the announcement of the US tariffs. In China, GDP rose by 5.2% year-on-year between April and June, “showing solid growth driven by resilient exports, while domestic consumption remains fragile due to the lack of recovery in the property market”, estimates the Luxembourgish economist. In Japan, the trade agreement with the USA, which provides for tariffs of up to 15%, will do little to improve economic growth.
Inflation in the eurozone remains unchanged
In the United States, the introduction of tariffs had its first slight impact on price indicators in June. The overall inflation rate rose from 2.4% in May to 2.7% in June. In the Eurozone, inflation was unchanged in July, with the headline rate at 2% and the rate excluding energy and food at 2.3%.
US Federal Reserve leaves monetary policy unchanged
Despite pressure from president Donald Trump, the US Federal Reserve left monetary policy unchanged at its July meeting. Chairman Jerome Powell reiterated, as at the previous meeting in June, his wait-and-see stance with a view to observing which of its 2 objectives, full employment or 2% inflation, will prove more at risk following the new administration's tariff policy. In the eurozone, the European Central Bank left its deposit rate unchanged at 2%, after lowering it at almost every meeting since June 2024. ECB President Christine Lagarde stated that the ECB was comfortable with the current level of key rates, given that the 2% inflation target had once again been reached.
Little movement on bond markets
Bond markets were little changed in July. In the United States, the yield on the 10-year Treasury note edged up, returning roughly to the level reached at the end of May. In the Eurozone, the trend was similar, with long rates showing a slight increase over the month in Germany, France, Italy and Spain.
Technology, energy and communication services were the best performers
The stock market rally continued in July, driven by persistent momentum in US technology stocks and European financials. Guy Wagner: “Tax cuts enacted by Congress and the Senate in the US, and ’final’ tariff levels less severe than those announced on ‘Liberation Day’, provided the narrative to justify the continued upward movement.” Thus, helped by the strength of the dollar, the MSCI All Country World Index Net Total Return expressed in euros gained 4.0% over the month. At the regional level, the S&P 500 in the USA, the Stoxx Europe 600, the Topix in Japan and the MSCI Emerging Markets index all registered gains. “In terms of sectors, technology, energy and communication services were the best performers, while materials, healthcare and consumer staples recorded the least favourable trends.”