LCI Monthly – What Shaped July 2025
Economy & Politics
Trade Policy and Geopolitical Developments
Trade tensions dominated the global agenda. In early July, U.S. President Donald Trump extended the pause on previously announced "reciprocal tariffs," pushing the deadline to August 1. He confirmed new tariff rates—ranging from 15% to 50%—depending on each country’s bilateral relationship and trade balance.
A major bilateral deal was reached with Japan, which secured a reduction of U.S. tariffs on auto imports and other goods to 15% (down from 25–27.5%) in exchange for a $550 billion investment package, including aircraft and defense purchases.
Conversely, Trump announced new tariffs effective August 1, including a 50% tariff on Brazilian imports, 35% on Canadian goods, and a 30% baseline tariff on EU and Mexican imports unless bilateral deals are finalized.
At the end of July, the U.S. and the EU struck a deal to impose a 15% tariff on European goods, temporarily averting a broader trade war. The EU committed to future investments and energy purchases in the U.S. However, confusion remains about product-specific tariffs. Trump and von der Leyen issued conflicting statements: while Trump claimed pharmaceutical products were excluded, von der Leyen mentioned a 15% duty. Both agreed that aircraft, aircraft parts, and other strategic goods would be exempt, while cars would be subject to the 15% tariff, and existing duties on steel and aluminum would remain in place.
Switzerland has been working to avoid getting caught in the crossfire of U.S.–EU trade tensions — but without success. Trump slaps a 39 percent tariff on Switzerland, leaving the Federal Council and the business community dismayed by the bad news from Washington.
A notable development was the ratification of the India–EFTA Trade and Economic Partnership Agreement, expected to take effect in October 2025. EFTA countries pledged up to $100 billion in investments over 15 years, aiming to lower trade barriers, streamline customs, and enhance IP protections.
Monetary Policy & Inflation
In July 2025, U.S. headline inflation (CPI) rose to 2.7% year-over-year, while core inflation stood at 2.9%. The modest uptick is partly attributed to base effects and early price increases in tariff-affected categories such as furniture and appliances. With inflation still above the Federal Reserve’s 2% target, policymakers are expected to hold off on rate cuts. The Fed had already kept rates steady at 4.25%–4.50% in June and July. Markets are watching for potential easing later in the year.
In the euro area, July headline inflation was 2.0% year-over-year and core inflation 2.3. Despite headline inflation aligning with the ECB’s target, the central bank remains cautious due to global uncertainties, particularly trade tensions. The ECB left its deposit rate unchanged at 2.0%, citing balanced inflation dynamics and geopolitical risks.
In Switzerland, the Swiss National Bank (SNB) cut its policy rate to 0% in early July, citing low inflation and a deteriorating global outlook. Although avoiding a return to negative rates, the SNB reaffirmed its willingness to intervene in currency markets. SECO revised its growth forecast for 2025 to 1.3% (from 1.4%), and for 2026 to 1.2% (from 1.6%).
Donald Trump Sets a “Dangerous Precedent”. After the release of disappointing job numbers, Donald Trump has fired the head of the U.S. Bureau of Labor Statistics — an agency traditionally seen as independent. Economists warn this move sets a dangerous precedent by undermining trust in the integrity of U.S. economic data, potentially damaging investor confidence and the credibility of future reports.
Business
Nvidia was regaining its position as the world’s most valuable company, crossing the $4 trillion mark. Since its low in early April, Nvidia shares have surged over 70%, though the rally remains uneven amid persistent geopolitical uncertainty.
Europe: Economic Strains & Social Tensions
At the EU–China summit, leaders raised concerns about export access and supply chain restrictions. Although little progress was made, the meeting underscored escalating trade tensions with China.
In Spain, the vital tourism sector came under pressure. Strikes by hotel workers in the Canary and Balearic Islands disrupted travel throughout July, with unions demanding better wages. Despite record international arrivals, hotel prices have soared 50% since 2021, making holidays unaffordable for many Spaniards. Domestic tourism declined, while outbound travel rose 12%. A major anti-tourism protest in Mallorca on 21 July drew up to 50,000 participants, highlighting growing friction between locals and visitors. The Bank of Spain cut its GDP forecast for 2025 from 2.7% to 2.4%, citing global trade uncertainty.
In contrast, Tesla posted disappointing results. The company reported a 16% drop in quarterly profits to $1.17 billion, as its core automotive business continues to shrink. Despite setbacks, Elon Musk teased a new “master plan” for Tesla’s future in autonomous driving and robotics—though the long-awaited robot era remains distant.
Sporting Highlight
On 27 July, England’s Lionesses won the UEFA Women’s Euro 2025 in Basel, defeating Spain in a dramatic final that ended 1–1 after extra time and was decided 3–1 in a penalty shootout. Goalkeeper Hannah Hampton emerged as the hero with two crucial saves. The win marks a historic back-to-back European title and avenges England’s defeat to Spain in the 2023 World Cup final—making the Lionesses the first senior England team to retain a major title abroad.
Markets
Fixed Income
Eurozone
Eurozone government yields drifted higher as growth sentiment held steady and eurozone inflation remained around 2 % y/y, aligning with projections. Credit spreads tightened, supporting corporate bonds despite slower issuance.
USA
U.S. Treasury yields remained broadly stable in July, with the 10-year yield fluctuating in a narrow range around 4.2% to 4.3%, ending the month little changed from June. However, underlying economic signals turned more negative. Only 73,000 new jobs were created in July—well below expectations—and previous months were revised downward, pointing to a weakening labor market. At the same time, inflation ticked up slightly, Investment-grade corporates and high yield bonds held up relatively well.
Equity
Global Overview
Developed market equities rose +1.3 %, achieving new all-time highs early in July. Emerging markets outperformed, climbing about +2.0 %, driven by Greater China and Korea thanks to improving economic data and AI sector tailwinds.
Europe
Over July 2025, the European stock market recorded modest yet positive momentum, edging higher by about 1.6%. This performance stood in sharp contrast to broader European sentiment, which was weighed down mid-month by evolving U.S.–EU trade developments—including a newly negotiated 15% tariff framework between the two regions. While this relief deal alleviated fears of higher tariffs, export-focused sectors felt continued pressure, broadening caution across equity markets.
North America
The S&P 500 gained approximately +2.3% in July 2025, continuing its upward trend and reaching new record highs. Strong second-quarter earnings—particularly from large-cap tech—bolstered investor sentiment, with over 80% of companies beating EPS estimates. However, modest late-month pullbacks, driven by sector-specific weakness and policy uncertainty, trimmed some gains. Despite this, sentiment remained bullish, with major banks raising year-end targets.
Meanwhile, Canada’s S&P/TSX Composite Index rose about +2.0% in July, supported by gains in real estate and consumer staples. The index extended its year-to-date performance to roughly +10%, making it one of the better-performing developed markets so far in 2025.
Asia-Pacific
Asia‑Pacific equities delivered mixed results in July, with significant divergence across major markets. Chinese equities rebounded strongly, gaining approximately +5.5%, supported by improving liquidity conditions, stimulus hopes, and signs of stabilization in the domestic economy. South Korea posted the region’s strongest performance, advancing by around +6.9%, as investor enthusiasm around AI and semiconductor exports lifted the tech-heavy market.
Japan’s equity market also ended the month on a positive note, rising +2.7%, helped by a weaker yen and continued strength in corporate earnings. In contrast, Indian equities declined by –3.0%, as foreign outflows and weaker sentiment around policy direction weighed on valuations. Australia recorded more modest gains of about +1.9%, supported by resilient commodity prices and defensive sectors such as utilities and healthcare.
Latin America
Latin American equity markets posted mixed results in July. Brazil’s Ibovespa fell by –4.2%, as investor sentiment deteriorated amid ongoing political uncertainty, a weakening currency, and concerns over global trade tensions impacting commodity exports. In contrast, Mexico’s S&P/BMV IPC slipped only –0.1%, with the market showing relative stability despite soft economic data and cautious investor positioning. Overall, the region lagged global peers after a strong first half of the year.
in local currency
Global Sectors in USD
