RECAPPING LAST WEEK

Major U.S. equity indices ascended to a fresh weekly closing high as signs of economic strength and positive corporate earnings reports overshadowed the increased pressure from the White House on Federal Reserve Chair Powell. The Nasdaq Composite gained 1.5%, while the S&P500 and Russell 2000 added less than 1%. S&P500 sector performance was mixed; technology jumped 2% after key supplier Taiwan Semiconductor reported strong Q2 earnings, while energy slid 3.5% along with crude oil prices.

Financials advanced after the large U.S. banks posted Q2 profits that jumped more than 20% YoY. In crypto news, the U.S. House passed the Genius Act, a bill creating a stablecoin regulatory framework, along with two other bills that could lead to wider adoption of digital assets. Bitcoin prices ended up slightly lower for the week, but Ethereum soared nearly 20% as inflows to exchange-traded products that track the second-largest digital currency spiked to record highs. U.S. Treasury yields began to climb following Tuesday’s CPI report which revealed an uptick in consumer prices for June. Higher food and energy prices pushed CPI up by 0.3% MoM and 2.7% YoY, largely in-line with forecasts. Shelter, vehicle, and travel-related costs moderated but several categories felt the effects of tariff increases, including furnishings, audio-video products, and appliances.

Longer-term Treasury yields jumped midweek, and the dollar plunged after reports emerged that President Trump was strongly considering replacing Fed Chair Powell. Although stocks pared losses after the President said the move was “highly unlikely”, investors may remain cautious given the administration’s increasing pressure to lower rates—an improbable outcome of the next FOMC meeting.

In other economic news, U.S. retail sales rebounded last month, although these figures are not adjusted for inflation. Consumer sentiment lifted to 61.8 from 60.7 this month, buoyed by an improving economic outlook and softening inflation expectations. Americans expect prices to rise by 4.4% over the next year, down from 5%. Manufacturing activity expanded in the New York and Philadelphia regions while price pressures remained elevated. The housing sector continued to suffer from high mortgage rates with single-family starts and permits falling sharply in June. The supply of new homes rose to levels last seen in late 2007. Overseas, China’s economy grew 5.2% YoY in Q2, slowing from 5.4% in the prior quarter. Industrial production accelerated 6.8% YoY in June, while retail sales growth eased to 4.8% from 6.4%. Property investment sagged despite multiple rounds of stimulus support and new home prices tumbled last month. China ended the first half of 2025 with a record trade surplus as firms were able to increase sales to other markets to compensate for reduced U.S. trade. UK CPI unexpectedly ticked up to 3.6% in June, the highest rate for any advanced economy. Economists still expect the Bank of England to cut rates next month as the labor market has continued to cool.

THE WEEK AHEAD

Global economies continue to hum along despite the constant barrage of trade tensions and geopolitical conflicts. This week’s release of flash PMI data will provide an update on the economic environment for developed nations in the face of ongoing uncertainty. In the U.S., investors will also focus on data such as new and existing home sales, along with durable goods orders. A number of notable companies report earnings this week, including Alphabet, Tesla, Intel, IBM, Texas Instruments, General Motors, Coca-Cola, and Capital One Financial. Fed Chair Powell is scheduled to speak at a conference on Tuesday morning.

While the U.S. dollar has recovered in recent weeks, last week’s events demonstrate that pressure from Washington is mounting on the central bank and the greenback. Overseas, the European Central Bank is expected to keep rates unchanged on Thursday, with just one more cut forecasted by year end. Japan’s Upper House Parliamentary elections over this past weekend may affect their central bank’s plans to raise interest rates. Surveys suggest that Prime Minister Ishiba’s coalition may lose its majority, giving opposition groups traction to pressure the BOJ into keeping rates low to ease the impact from the country’s enormous debt burden. The rest of the international calendar includes minutes from the recent Reserve Bank of Australia meeting, Japan’s core CPI reading, and British retail sales.

(Schwab)