Market Review 18th August 2025
- Simplicity News Desk
- Aug 18
- 4 min read
Everything you need to know, Simplified!
Summary
US inflation data was mixed, with CPI cooling but producer prices rising 0.9% in July
Traders scaled back expectations of a September rate cut, with the two-year Treasury yield steady around 3.75%
Asian equities gained on stronger semiconductor demand and optimism over a US–China trade truce
The International Energy Agency cut its 2024 oil demand forecast to the slowest pace since 2009 outside COVID-19
US retail sales rose 0.5% in July, though signs of weaker discretionary spending are emerging
The UK economy grew 0.3% in Q2, beating the Bank of England’s forecast of 0.1%.
Market Review
Markets lose direction on the back of mixed inflation data
Markets climbed early in the week after a cooler-than-expected US CPI report on Tuesday eased concerns that President Donald Trump’s tariff campaign would ignite fresh price pressures. Asian equities followed suit, buoyed by optimism over steady US demand for semiconductors, while signs of a renewed US–China trade truce lifted global stocks. The upbeat data also strengthened expectations of a Federal Reserve (Fed) rate cut next month.
Later in the week, however, the picture became more complicated. US producer prices for July rose far more than anticipated, driven by higher costs for both services and goods, hinting at broader inflationary pressures ahead - particularly for the closely watched Personal Consumption Expenditures index. The Labor Department reported Thursday that the producer price index for final demand jumped 0.9% in July, after holding flat in June, well above economists’ forecasts of a 0.2% increase. Economists were quick to note that the PPI figures were indicative of tariff-related pressures.
Markets reacted cautiously, as traders pared back expectations of a rate cut in September. Treasury yields initially retreated before edging higher again, with the two-year yield last seen around 3.75%. The dollar also firmed slightly.
Oil outlook darkens as demand falters
The International Energy Agency (IEA) warned Wednesday that surging oil production - driven by Saudi Arabia - is set to run into faltering demand in the year’s final quarter, especially in Asia. The IEA cut its 2024 demand growth forecast to 680,000 barrels a day, one-third lower than January’s estimate and the slowest pace since 2009 outside COVID-19. It was the agency’s sixth downgrade in six months, with geopolitical tensions weighing on consumption in China, India and Brazil.
US retail sales steady, but cracks show
Retail sales rose 0.5% in July, matching forecasts and extending June’s 0.6% gain, Census Bureau data showed. Core sales, excluding autos, were up 0.3%, suggesting a slowdown in discretionary spending. On an annual basis, sales climbed 5.9%, supported by back-to-school shopping and summer discounts. Automobiles, non-store retailers and food services led the gains. The July figures come as markets increasingly anticipate a September rate cut from the Fed, with softer inflation and a cooling labour market bolstering the case for monetary easing. Still, signs of spending fatigue and cautious consumer sentiment - especially among lower-income households - continue to cloud the outlook.
UK growth tops forecasts despite slowdown
Britain’s economy expanded faster than expected in the second quarter, despite slowing from a strong start to the year amid pressure from higher taxes and the fallout from Trump’s global trade policies. The Office for National Statistics data showed GDP growth of 0.3% in the three months to June, down from 0.7% in the first quarter but beating the Bank of England’s forecast of just 0.1%. The figures highlight the challenge facing Chancellor Rachel Reeves as she weighs measures to stimulate growth and raise revenues in the government’s Autumn Budget.
The week ahead
Wednesday
UK CPI & PPI: The consensus is for unchanged CPI and a marginal increase in PPI.
Our thoughts: There is the potential for a negative surprise with producer prices, given the tariff backdrop.
FOMC Minutes: The market will be scrutinising the latest Federal Open Market Committee discussions, as the interest rate backdrop has become more difficult to gauge.
Our thoughts: We expect the rhetoric around tariff impacts and economic uncertainty, to continue.
Thursday
PMI Indices: Thursday will see a number of PMI indices released, including for the US and the Eurozone.
Our thoughts: The market is expecting marginal increases or unchanged positions for manufacturing PMIs, and marginal declines for Services PMIs. US services is the one to watch, given that July’s reading was well above consensus, and marked the sharpest period of business expansion this year.
Data point of the week
US drinking hits historic low
American alcohol consumption has fallen to its lowest level in nearly nine decades, according to Gallup. Just 46% of self-identified Republicans reported drinking this year - a drop of almost a third from 2023.
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