Key Highlights

• The Chinese government will resume collection of value-added tax on interest income from bonds sold by central and local governments, as well as financial institutions, starting August 8, after decades of exemption.

• Japanese Prime Minister Ishiba is ready to compile a supplementary budget to cushion the economic blow from U.S. tariffs, a move that would add strain the country’s already worsening finances.

• OPEC+ agrees to raise oil production by 547,000 barrels per day for September, citing a healthy global economy and lower stockpiles. Brent crude declined 1.2% to below $69 a barrel. 

Chart of the Day

SWISS EQUITY HOLDINGS BROADLY TRACK EMEA HEALTH CARE SECTOR

^{Source: BNY}

Switzerland is still coming to terms with the shock of 39% tariffs imposed on exports to the U.S., which go into effect midweek. The country’s business minister said Switzerland remains open to revising its offer to the U.S., but mounting economic risks may prompt the Swiss National Bank to revisit its policy prospects for September, even with the stronger-than-expected CPI print for July reported overnight. The bottom line is that financial conditions may tighten materially in the near term, especially through the equity channel. Bern must prepare for the worst as pharmaceutical tariffs, which currently enjoy an exemption, are also due soon. The level of the CHF in nominal terms is also a long-standing consideration for earnings translation. Aside from the loss of market share due to price effects, the U.S. administration is also pressuring global pharmaceutical companies to lower prices in general, adding another earnings headwind. Our data show that current Swiss equity holdings are near the highs of the year, around 7% above the rolling one-year average. However, the trends are in lockstep with the European life sciences sector, which is facing ever-growing headwinds. We continue to see Swiss assets in a favorable light but acknowledge that an adverse outcome for country- and sector-level tariffs will require a reappraisal of this view. The SNB alone will likely respond forcefully to the threat of a recession in the country, given the chemicals and pharmaceuticals industry is Switzerland's leading exporter, generating roughly 50% of total annual exports and 7% of GDP (Swiss government figures from 2023).

What's Changed?

Risk sentiment is positive, and the lack of significant weekend news contributed to unwinding Friday’s washout trades. The weekend also delivered hope that the FOMC will cut more than 25bp in September and that the replacement of Fed Governor Kugler, along with a new Bureau of Labor Statistics (BLS) commissioner, will help rebalance the Fed. On Friday, President Trump fired the BLS head following the release of disappointing labor data. Both appointments are expected this week and add to political uncertainty around the markets. The Trump administration’s actions to undermine Fed Chair Powell and the BLS move erode confidence in U.S. monetary policy and economic data. However, the U.S. dollar index is again down 0.2%, even as bond yields rise 3 to 4bp in the U.S., and U.S. S&P 500 futures gain 0.7%. Dollar weakness reflects fears of a “sell America” theme, as reciprocal tariffs reset the global trading system. Risk premiums are returning to U.S. assets given uncertainty, volatility and a shift toward nation-first policies. There are two other markets in focus overnight: Japan, where tariff politics are driving expectations of more fiscal largesse; and Switzerland, where CPI and tariff shock complicate efforts to address potential recession risks. Weaknesses in CHF, JPY, USD, leave safe-haven FX markets searching for alternatives. U.S. markets today will test the rally back in equities as they balance against rate cuts to offset potential stagflationary trends ahead. Focus on durable goods and factory orders is unlikely to shift nascent trends, while Q2 earnings reports and more from President Trump will likely add volatility, rather than trigger reversals. The key for the hope trade isn’t FOMC easing, but earnings and growth holding in a new world of tariffs.

What You Need to Know

The eight participating OPEC+ countries will implement a production adjustment of 547,000 barrels per day in September 2025 over August’s required level, representing four monthly increments. The move reflects healthy fundamentals and low inventories, in line with their Dec. 5, 2024, decision to start a gradual return of 2.mn bpd voluntary cuts from 1 April 1, 2025. The phase-out may be paused or reversed if conditions evolve. The group reaffirmed full conformity with the Declaration of Cooperation, committed to compensating overproductions since January 2024 and will hold monthly reviews, next on Sept. 7, 2025. Brent -1.063% to 68.93, WTI -1.129% to 66.57.

Switzerland’s July CPI rose 0.2% y/y to 107.8 points (Dec 2020 = 100) and was unchanged m/m. Core inflation* rose 0.8% y/y to 106.0 points and fell 0.1% m/m. Inland goods inflation rose 0.7% y/y to 107.8 points and increased 0.2% m/m, while import goods inflation fell 1.4% y/y to 107.4 points and dropped 0.9% m/m. Services inflation rose 1.4% y/y to 107.7 points and gained 0.2% m/m. Non-durable goods inflation fell 1.9% y/y to 110.6 points and rose 0.4% m/m. Durable goods inflation fell 2.0% y/y to 102.2 points and declined 0.4% m/m. The harmonized consumer price index (HVPI) rose 0.1% y/y to 108.02 points and gained 0.3% m/m. Meanwhile, recriminations in the country continue due to the surprisingly high level of tariffs imposed by the U.S. on Swiss exports to the country. SMI -0.537% to 11772.49, EURCHF +0.444% to 0.93572, 10y Swiss GB -2.1bp to 0.343%.

Switzerland’s July KMU-PMI fell 2.1 points m/m to 50.3 points, remaining just above the 50-point growth threshold. All five subcomponents weakened m/m, with production down to 50.7 points from 53.6, purchasing inventories to 46.5 from 51.1 and the orders component to 53.3 from 54.1. The downturn was driven primarily by export-oriented SMEs, while domestically focused companies continued to benefit from robust domestic demand. Employment in export SMEs contracted but remained stable for domestic firms. U.S. tariff policy has become more restrictive than expected and pre-ordered demand is set to wane over the remainder of the year.

The U.K. Supreme Court on Friday ruled that car dealers do not owe a fiduciary duty to customers when arranging finance, reversing the Court of Appeal decision that threatened tens of billions in compensation for banks concealing dealer commissions. U.K. bank shares rallied strongly on Monday in the wake of the judgment. Delivering its unanimous verdict, a panel of five justices found that dealerships acted in their commercial interests, overturning two of three appeals brought by financial institutions while upholding part of a claim by a factory supervisor. Trade and Treasury officials welcomed the decision as vindicating measured diplomacy and pressed the Financial Conduct Authority to determine whether an industry-wide redress scheme should be imposed. FTSE 100 +0.472% to 9111.38, GBPUSD +0.128% to 1.3296, 10y Gilt +1bp to 4.538%.

What We're Watching

U.S. June factor orders are forecast to decline by -4.8% m/m after 8.2% gains in May, while ex-transport hold steady at 0.2% m/m. Durable goods orders is expected to be unchanged from flash at -9.3% m/m.

U.S. Treasury sells $82bn in 13-week and $73bn in 26-week bills.

What iFlow is Showing Us

Mood: Investor sentiment continued to deteriorate, with iFlow Mood dropping to the lowest levels since early May 2025. Equity demand flattened, while buying in core sovereigns gained momentum.

FX: FX flows were relatively light without significant inflows nor outflows. COP and EUR were the most sold against the best demand in PLN and ZAR. USD, GBP and JPY were lightly bought against selling in IDR, KRW, CNY and AUD.

FI: There was relatively strong demand for sovereign bonds in Mexico, U.S., U.K., Eurozone, China and Singapore. NZD government bonds stood out with the most outflows.

Equities: Outflows bias in DM, LatAm and EMEA. U.S., Europe, Denmark, Colombia. Elsewhere, Sweden posted strong buying demand and broad inflows in the APAC region. Within EM APAC, communication services, consumer discretionary and information technology sectors were sold against strong demand in health care and energy sectors.

Quotes of the Day

“Progress always involves risks. You can’t steal second base and keep your foot on first.” – Federick Wilcox

“Our lives improve only when we take chances – and the first and most difficult risk we can take is to be honest with ourselves.” – Walter Anderson

Economic Details

Eurozone August 2025 Sentix Economic Index declined to -3.7 points as both the current situation and expectations components eased, highlighting investor pessimism over the EU-U.S. tariff deal. Germany’s index collapsed by 12.8 points to −12.8, dipping into recessionary territory, while the U.S. headline index rose to 6.1 points, but saw expectations fall to −7.8. Switzerland’s index plunged by 21.2 points to −3.9. Asia ex-Japan remained positive at 10.4, Japan stood at 4.1 and Latin America stagnated at −2.9. Austria tumbled to −17.0, and the global aggregate index held at a slight upturn of 4.6. The survey of 1,050 investors underscores diverging regional regimes, with stabilization in the Eurozone and Germany, downturn in Switzerland and cooling in the U.S. Eurostoxx 50 +1.238% to 5229.57, EURUSD -0.139% to 1.1571, BBG AGG Euro Government High Grade EUR -1bp to 2.871%.

According to the Mechanical Engineering Industry Association of Germany, the country’s machine and plant construction orders in H1 2025 rose 1% y/y. Domestic orders were down 1% and exports up 2%, driven by a 16% rise from euro-area markets while non-euro orders fell 3%. In Q2, orders declined 2% y/y as domestic orders fell 2% and foreign orders slipped 1%. Euro-area demand rose 19%, offset by a 9% drop from non-euro markets. June orders remained subdued, missing the prior-year level by 5% y/y across both domestic and foreign markets. The June shortfall contrasted with the modest H1 gain and reflected uncertainty over U.S. tariff measures. DAX +1.299% to 23730.35, EURUSD -0.139% to 1.1571, 10y Bund -0.2bp to 2.677%.

Spain’s July registered unemployment fell by 0.06% m/m to 2,404,606 persons and declined 5.71% y/y, marking the lowest July level since 2007. By sector, annual unemployment decreases were largest in services (-87,684), construction (-21,188), industry (-13,836), previous no-job cohort (-11,555) and agrarian sector (-11,368). Month over month, the no-job cohort fell by 3,315 (-1.45%) and agrarian by 614 (-0.78%), while construction (+0.08%), industry (+0.22%) and services (+0.12%) saw modest increases. Youth unemployment (<25) dropped 1.54% m/m (-2,561) to 164,146, and female unemployment edged down 0.06% (-901) versus a 0.05% fall for men (-456). July contracts totaled 1,588,983, with 38.39% indefinite; Jan – Jul contracts reached 9,034,369 (+0.89%). Unemployment benefit coverage rose to 76.8%, and June outlays reached €1,851.6mn. IBEX 35 +1.072% to 14307, EURUSD -0.139% to 1.1571, 10y Bono -1.3bp to 3.25%.

Turkey’s July CPI rose 33.52% y/y and 2.06% m/m, with food and non-alcoholic beverages up 27.95% y/y and 0.07% m/m, transportation prices climbing 26.57% y/y and 2.89% m/m, and housing costs surging 62.01% y/y and 5.78% m/m. The special CPI B indicator, excluding unprocessed food, energy, alcoholic beverages, tobacco and gold, increased 33.77% y/y and 1.82% m/m. CPI, excluding seasonal products (Group A), rose 35.21% y/y and 2.94% m/m. Compared with December, the index rose 19.08%, and the 12-month average change was 41.13%. Of 143 items tracked in July, 120 recorded price increases, 18 recorded declines and five showed no change. BI 100 +1.058% to 10860.7, USDTRY +0.086% to 40.6784, 10y TGB -9bp to 31.32%.

Australia’s July Melbourne Institute inflation jumped 0.9% m/m and rose to 2.9% y/y from 2.4% y/y, the most since April (3.3%). Over the weekend, Australian Trade Minister Farrell described the U.S. tariffs outcome as vindication of the Albanese government’s measured diplomacy and pledged support for exporters to capitalize on the favorable rate. He added that Australia will continue to lobby Washington for full removal of tariffs under the bilateral free trade agreement. Australia’s U.S. tariff rate remained steady at 10%, as announced by President Trump, designating Australia as an Annex II country under the executive order signed August 1. This decision, effective August 7, 2025, leaves Australian exporters in a position of relative advantage compared with Annex I nations facing duties up to 41%. ASX +0.48% to 4942.76, AUDUSD +0.17% to 0.6485, 10y ACGB 0bp to 4.315%.

Taiwan’s July building transfers were 18,856 units, up 4.2% m/m and down 29% y/y, with year-to-date transfers totaling 119,058 units, down 27% y/y. Taipei recorded 2,073 units (+1.8% m/m, -29.8% y/y); New Taipei 4,455 (+5.8% m/m, -25.5% y/y); Taoyuan 4,145 (+13.9% m/m, -17.0% y/y); Taichung 3,659 (+17.2% m/m, -38.7% y/y); Tainan 1,701 (-20.5% m/m, -26.6% y/y), the lowest July level since 2018; and Kaohsiung 2,823 (-4.2% m/m, -35.0% y/y). Experts cite persistent credit controls and tightened mortgage policies as constraining loan accessibility and buyer sentiment, forecasting continued volume contraction and modest price declines in the second half. Analysts highlight delayed loan approvals, rate-market divergence and forthcoming home deliveries as insufficient to drive a significant rebound. TAIEX -0.237% to 23378.94, USDTWD -0.374% to 29.902, 10y TGB -0.6bp to 1.375%.