Key Highlights

• The Reserve Bank of India holds rates at 5.25%, and Governor Malhotra warns that the RBI does not have sufficient data to revise GDP forecasts due to global uncertainty.

• A U.K. economic report forecasts the government will miss its “stability rule” with a deficit of £41.2bn in FY 29/30, thereby requiring “substantial adjustments” in the Autumn Budget.

• President Trump continues plans for new tariffs linked to Russian oil, semiconductors and pharmaceuticals, along with the rush to name a new Fed governor. 

Chart of the Day

INDIA AND SOUTH AFRICA EQUITY HOLDINGS SHRUG OFF PUNITIVE TARIFF RISK

^{Source: BNY}

As the implementation date for the new U.S. tariff schedule approaches (or in Canada’s case, has passed), we expect frantic last-minute attempts by some countries to reach agreements with the U.S., as evidenced by yesterday’s delegation from Bern. Several major economies face current or potential tariffs in excess of 30%, and how their assets perform will have material implications for global asset allocation. Yet, based on price action over the past few days — and in some cases the last few weeks, as the threat of punitive action became clear — there has been very little sign of stress in the affected nations. For example, South Africa is the only major EMEA economy facing higher tariff risk, at 30%, and President Ramaphosa has stated that the economy is now facing an emergency, yet equity and fixed income holdings have reached the highest levels year to date. Meanwhile, despite warnings of high uncertainty during the RBI decisions overnight, Indian equity holdings remain near this year’s highs. Many investors have hoped to gain long-term exposure to India precisely because it is not as trade-dependent as the rest of Asia, and so far, the equities performance seems to support this view.

What's Changed?

Risk sentiment is modestly positive. Earnings in U.S. and EU drive equities, with investors looking past tariffs on global growth worries. The rally in EU shares extends for the third day despite German lower factory orders in June, weaker construction PMIs and steady EU retails sales. The rally in Asia found some support on hopes for a U.S. trade deal with China, with Shanghai shares back to 2021 highs, even as the Reserve Bank of India held rates steady and warned about tariffs, and peak monsoon conditions in the region triggered landslides and disease outbreaks. The rally in the U.S. continues with OpenAI in talks to sell secondary shares, putting its value at $500bn, even while Berkshire Hathaway underperformed as Warren Buffet prepares to step down. Global rates, the usual counterweight to the equity rallies, remain tame. Ken Saito of Japan’s ruling Liberal Democratic Party is pushing for no rate hikes from the Bank of Japan, coupled with lower wages offsetting the 10Y JGBs move up 2.5bp back towards 1.50%. In Europe, outgoing ECB official Robert Holzmann said the central bank does not need to ease further, pushing Bund yields up 2bp to 2.65%. For the U.S. the 10-year $42bn sale and the restart of Fedspeakers with all eyes on rate cut chatter for September leaves the curve bear steepening. Oil is up 1.5% after the American Petroleum Institute (API) reported a big 4mn-barrel crude draw while the focus is on U.S. Envoy Witkoff’s meetings with Russia’s President Putin regarding the war in Ukraine. Markets appear focused on extending the current risk rally by looking beyond near-term concerns. These include President Trump’s plans to name a new Fed Chair, new tariff plans and ongoing talks with India and Switzerland, complicated by economic data, including the CPI on August 12. This leaves the USD as the usual shock absorber, with the tighter ranges for G10 currencies reflecting caution rather than confidence in the month ahead. The negative correlation between the dollar and global shares remains central to looking past the wall of worry.

What You Need to Know

The Reserve Bank of India (RBI) kept its key repo rate steady at 5.50% in line with expectations. The decision was unanimous, and all members agree to continue with a “neutral” stance. FY25–26 inflation forecast is adjusted lower from 3.7% to 3.1% y/y. But the trajectory is less dovish. Inflation is seen to bottom at 2.1% in Q2 and then rise steadily to 3.1% in Q3 and 4.4% in Q4 and then FY26–27 Q1 at 4.9%. On the growth front, there is no change in forecast, with FY25–26 at 6.5% and Q1 to Q3 GDP to be steady around 6.5–6.7% before a dip to 6.3% in Q4 and then a swift rebound higher to 6.6% in Q1 FY26–27. SENSEX –0.067% to 80656.06, USDINR –0.133% to 87.6888, 10y INGB +6.4bp to 6.396%.

Euro area June retail trade volume rose by 0.3% m/m (cons.: 0.3% m/m) after a 0.3% decline in May, with food, drinks and tobacco up 0.2%, nonfood products up 0.6%, and automotive fuel up 0.4%. Annual growth was 3.1%, led by a 4.3% y/y rise in nonfood sales and 4.0% in fuel. The EU also posted 0.3% m/m and 3.1% y/y gains. Croatia (+3.6%), Sweden (+2.6%) and Malta (+2.2%) recorded the strongest monthly increases, while France (−0.9%) and Poland and Slovenia (both −0.8%) posted the largest drops. On an annual basis, Cyprus (+8.7%) and Croatia (+7.4%) led growth, while Finland (−1.1%) and Slovakia (−0.4%) declined. EuroStoxx 50 +0.495% to 5275.57, EURUSD +0.026% to 1.1578, BBG AGG Euro Government High Grade EUR –1bp to 2.871%.

Germany June manufacturing orders fell 1.0% m/m (cons.: +1.1%) but rose 0.8% y/y. Excluding large-scale orders, new orders increased 0.5% m/m. The drop was mainly driven by a 23.1% m/m decline in other transport equipment, along with weaker demand in the automotive industry (–7.6%) and metal products (–12.9%). However, orders for electrical equipment rose 23.5%. By goods category, capital goods orders dropped 5.3%, while consumer goods rose 0.5% and intermediate goods climbed 6.1%. Foreign demand decreased 3.0% overall, with Eurozone orders up 5.2% but non-Eurozone orders down 7.8%; domestic orders increased 2.2%. June turnover in manufacturing rose 0.9% m/m but declined 1.2% y/y. May figures were revised to show a 0.8% m/m drop in orders and 1.8% m/m fall in turnover. DAX +0.575% to 23983.25, EURUSD +0.026% to 1.1578, 10y Bund +1.1bp to 2.635%.

U.K. fiscal challenges remain acute, according to the latest U.K. Economic Outlook published by the National Institute of Economic and Social Research. The Government is not on track to meet its “stability rule,” with a projected current deficit of £41.2bn in 2029–30, requiring substantial fiscal tightening in the Autumn Budget. Living standards for the poorest 10% of households fell by 1.3% in 2024–25 and remain around 10% below pre-Covid levels, with further declines expected in 2025–26 as housing and food costs outpace income growth. Inflation is forecast to ease gradually to target, averaging 3.3% in 2025 and 2.8% in 2026, though wage growth and the April NLW rise may maintain short-term price pressures. Two further 25bp rate cuts are anticipated in 2025 and another in 2026, though the Bank of England’s scope for easing remains constrained by economic uncertainty. While additional transport investment aims to address regional connectivity gaps, concerns persist over its scale and lack of integration with housing to support access to labour markets. FTSE 100 +0.217% to 9162.58, GBPUSD –0.023% to 1.3296, 10y gilt +2.1bp to 4.537%. 

Japan June nominal wages rose 2.5% y/y (cons.: 3.1%y/y) to ¥511,210 on average across establishments with five or more employees, with scheduled wages up 2.1% and special payments up 3.0%. General workers’ total cash earnings increased 3.0%, while part-time workers saw a 2.0% rise, with hourly wages up 4.0% to ¥1,388. Real wages, adjusted using the CPI excluding imputed rent, fell 1.3% y/y, and declined 0.7% y/y when adjusted by the overall CPI. Real total hours worked dropped 0.3% y/y, and overtime hours fell 3.0% y/y. Full-time employment rose 1.0% y/y and part-time employment increased 2.6%, pushing the part-time worker ratio to 31.05%, up 0.35 points from the previous year. Nikkei +0.605% to 40794.86, USDJPY –0.014% to 147.6, 10y JGB +2.5bp to 1.497%.

What We're Watching

U.S. Treasury sells $65bn in 17-week and $42bn 10y notes

Central bank speakers: Federal Reserve Governor Lisa Cook and Boston Fed President Susan Collins participate a in panel discussion with Central Bank of Chile Board member Luis Felipe Céspedes.

What iFlow is Showing Us

Mood: Risk reduction continues with equity demand flattened out, while core sovereign buying stays elevated. iFlow Mood dropped further into risk-off zone.

FX: Mixed and light flows. INR, TWD, PLN and ZAR posted the most inflows, while the most outflows were recorded in CNY and COP. Elsewhere, USD, GBP and JPY posted light inflows.

FI: U.K. gilts and Chinese and Mexican government bonds were the most bought followed by U.S. Treasurys and Eurozone government bonds. Canadian and Indonesian government bonds were most sold.

Equities: DM Americas and DM EMEA region equities were significantly sold. The U.S., Denmark, Europe, Colombia and Israel equities were the most sold. Swedish and Turkish equities posted the best inflows. Flows in EM APAC were mixed and light. Within DM, the Industrials, Health Care and Information Technology sectors were the most sold, with light buying in Consumer Discretionary, Communication Services, Utilities and Real Estate sectors.

Quotes of the Day

“Look back over the past, with its changing empires that rose and fell, and you can foresee the future, too.” – Marcus Aurelius

“Telling the future by looking at the past assumes that conditions remain constant. This is like driving a car by looking in the rearview mirror.” – Herb Brody

Economic Details

U.K. construction PMI fell sharply to 44.3 (cons.: 48.8) in July from 48.8, marking the fastest contraction in over five years. Activity declined across all sub-sectors, with civil engineering recording the steepest drop and residential building also weakening again. New orders fell for a seventh consecutive month, driven by fewer tender opportunities and low client confidence. Payroll numbers declined for a seventh month, while purchasing activity and materials demand dropped. Delivery delays returned after six months of improvement, and input costs rose sharply, though inflation was at its weakest since January. Business confidence remained subdued despite a slight uptick from June. FTSE 100 +0.217% to 9162.58, GBPUSD –0.023% to 1.3296, 10y gilt +2.1bp to 4.537%.

Germany’s construction PMI rose to 46.3 in July, the highest since February 2023, indicating a slower pace of decline. Commercial activity expanded modestly, offsetting continued weakness in housing and a renewed drop in civil engineering. New orders saw their steepest fall in four months. Employment and purchasing activity continued to contract, though the pace of job losses slowed. Firms remained mildly pessimistic. DAX +0.575% to 23983.25, EURUSD +0.026% to 1.1578, 10y Bund +1.1bp to 2.635%.

France’s construction PMI dropped to 39.7 in July from 41.6, marking its lowest level in ten months. New orders declined at the fastest pace since November 2020, and purchasing activity fell at the sharpest rate in over a decade (excluding Covid-affected months). Commercial activity was the weakest segment, and job losses accelerated to the highest rate since May 2020. Confidence was the lowest since November 2024. CAC40 +0.5% to 7659.14, EURUSD +0.026% to 1.1578, 10y OAT +1.1bp to 3.297%.

Italy’s construction PMI fell to 48.3 in July from 50.2, signaling the first contraction in five months. Output declined across all sub-sectors, led by a sharp fall in civil engineering. New orders fell marginally, driving the steepest drop in purchasing activity in 11 months. Confidence hit a six-month low, while employment rose for the eleventh month despite a decrease in subcontractor usage. FTSEMIB +0.585% to 40982.01, EURUSD +0.026% to 1.1578, 10y BTP +1.1bp to 3.437%.

Hungary June industrial production fell 4.9% y/y and declined 1.2% m/m on a seasonally and working-day adjusted basis. Most manufacturing subsectors recorded lower output, with significant drops in transport equipment production, while food products, electronics and electrical equipment saw slight gains. In the first half of 2025, industrial output was 3.9% below the same period in 2024. Retail sales in June rose 3.0% y/y and 0.5% m/m. Food retail increased 3.7%, nonfood retail rose 3.9% and automotive fuel sales were up 2.5%. Online and mail order sales grew by 9.2%. January–June retail volumes were up 3.1% y/y, with food sales up 2.9%, nonfood up 4.5% and fuel up 1.0%. June retail turnover totaled HUF 1,702bn. Budapest SI –0.242% to 101540, EURHUF –0.111% to 397.89, 10y HGB +1bp to 7.07%.

Czech Republic June trade balance was supported by an CZK 8.3bn y/y rise in the motor vehicle surplus and a CZK 4.6bn gain in other transport equipment, offsetting weaker balances in fabricated metal products (−CZK 4.2bn), crude petroleum and gas (−CZK 4.0bn), and electrical equipment (−CZK 3.0bn). Exports rose 7.4% y/y to CZK 416.1bn and imports increased 9.2% y/y to CZK 389.8bn. The trade surplus with the EU grew by CZK 2.8bn, while the non-EU deficit widened by CZK 4.2bn. Construction output rose 14.0% y/y and 2.6% m/m, driven by civil engineering (+20.3%) and building construction (+10.3%). Completed dwellings rose 40.0% y/y; housing starts fell 2.5%. Prague SE +0.485% to 2266.53, EURCZK –0.009% to 24.593, 10y CZGB +0.4bp to 4.339%.

New Zealand’s unemployment rate rose to 5.2% (cons.: 5.3%) in the June quarter, up from 5.1% in March and 4.7% a year earlier. The number of unemployed reached 158k, rising by 16k or 11.1% y/y. The underutilization rate increased to 12.8%, from 12.4% in March and 11.9% in June 2024. The employment rate declined to 66.8%, compared with 67.1% in March and 68.3% a year earlier. Annual wage inflation slowed to 2.4%, down from 4.3%, while average ordinary time hourly earnings rose 4.5% to $43.39. The number of youth (15–24) in education rose 5.0% y/y to 379,900, with the participation and employment rates falling to 62.3% and 53.1%, respectively. The NEET rate held steady at 12.2%. NZX 50 +0.024% to 12880.16, NZDUSD +0.356% to 0.5924, 10y NZGB +2.9bp to 4.443%.

The Philippines June unemployment rate eased to 3.7% from 3.9% in May. Labor force participation eases from 65.8 to 65.7. On the month, wholesale and retail trade added most jobs (908k), followed by fishing and aquaculture (428k) while accommodation and food services shed the most jobs (–562k), followed by agriculture and forestry (–480k). In addition, Q2 agriculture output was up 5.7% y/y, from upwardly revised 2.0% in Q1. It is the best quarterly growth since the 6.4% increase in Q2 2017. Crops (11.3% y/y) and poultry (+7.0% y/y) recorded expansions in the value of production, while livestock (–5.9% y/y) and fisheries (–4.2% y/y) registered declines during the period. PSEi +0.268% to 6370.65, USDPHP –0.169% to 57.555, 10y PHGB –4bp to 6.038%.

Thailand July CPI dropped further into deflation at –0.7% y/y (cons.: –0.4%y/y), the fourth negative y/y and the lowest since February 2024 (–0.77% y/y). Core inflation fell to 0.84% y/y (cons.: 0.93% y/y), the lowest since January 2025. The lower inflation trajectory and downside growth are likely to see further calls for the Bank of Thailand to cut interest rates. August inflation is likely to stay low on lower oil prices. Furthermore, foreign tourist arrivals from January 1 to August 3 fell 6.56% from the same period a year earlier. There were about 19.57 million foreign visitors during the period, the ministry said in a statement. China was the largest source market with 2.73 million visitors. SET +1.431% to 1264.8, USDTHB –0.084% to 32.355, 10y TGN –1.1bp to 1.465%.