Market Review 21st July 2025
- Simplicity News Desk
- Jul 21
- 3 min read
Everything you need to know, Simplified!
Summary
Global equities rose 1.25% last week as US banks reported strong earnings, supporting confidence in corporate fundamentals despite macro volatility
Analysts have reversed earnings downgrades from earlier in the year, setting forward expectations at record highs with profit margins remaining equally robust
UK inflation surprised to the upside at 3.6% year-on-year in June, pushing gilt yields higher as markets dialled back rate cut expectations
US inflation remained muted at 2.7% and President Trump has renewed his pressure on US Federal Reserve (Fed) Chair Jerome Powell
Markets will be watching Thursday’s European Central Bank (ECB) meeting, which is expected to remain at the 2% perceived neutral rate.
Market Review
Strong earnings push equities to fresh highs
Global equities gained 1.25% in sterling terms last week, bolstered by a strong start to earnings season. Major banks in the US delivered better-than-expected results, signalling continued resilience in the financial sector, which remains the largest contributor to global equity returns year-to-date. While the financial sector’s fundamentals look particularly solid with expected earnings growth of 7.8%, the sector also faces tailwinds from deregulation and a steeper yield curve (good for bank profitability). Positive surprises extended beyond banks though, with several large consumer-facing and industrial companies also exceeding forecasts.
Solid corporate earnings have reinforced confidence and bolstered risk assets amidst macro volatility this year. So much so that analysts, who had been downgrading earnings estimates for 2025 and 2026 earlier in the year, now have set their expectations at record highs. Profit margins too remain near record levels.
Overall, with earnings season off to a robust start, corporate fundamentals remain a key anchor for risk assets, helping to justify lofty valuations, particularly in the US.
UK inflation heats up
UK inflation surprised to the upside last week, with consumer prices rising 3.6% year-on-year in June. This comes alongside rising unemployment, which reached a four-year high of 4.7% in the three months to May and two consecutive months of economic contraction. The inflation overshoot pushed gilt yields higher as markets recalibrated interest rate cut expectations.
One potential quirk in the inflation data was the large jump in the ‘recreation and culture’ category. With the Glastonbury Festival and an Oasis reunion in July (neither of which I suspect are well captured in economists’ models), some of this rise may prove a blip – in the same way Taylor Swift’s tour briefly boosted inflation last year (the Swift effect).
Persistent inflation, stagnant growth and concerns around fiscal sustainability – exacerbated by current government policy – leaves the UK economy and its Chancellor in a precarious position. The 30-year gilt yield closed the week at 5.51% and is trading at levels not seen since 1998.
Will no one rid me of this turbulent Fed Chair
US inflation data for June was relatively muted at 2.7% year-on-year. While there was some evidence of tariff passthrough in goods prices, this was smaller than anticipated and was offset by ongoing disinflation in services.
With inflation cooling and ‘Too Late Powell’ reluctant to cut interest rates, President Trump has been ramping up efforts to oust the Fed Chair. Trump reportedly showed Congressional Republicans a drafted letter to fire Powell, despite publicly stating he has no short-term plans to do so. While the President does not have the power to dismiss the Chair simply for policy disagreements, cost overruns on the Fed’s $2bn office renovation could potentially provide the necessary grounds – something the administration is rumoured to be exploring.
Trump may ultimately find it impossible to remove Powell and Treasury Secretary Scott Bessent appears to prefer a smooth transition when Powell’s term ends next May. Nevertheless, the threat brings into question the future independence of the Fed. Bond vigilantes will likely revolt if this goes too far.
The week ahead
Thursday: ECB rate decision
Our thoughts: The ECB deposit facility rate is currently at 2.0%; the perceived long-run neutral. The ECB will likely cut further given how cost pressures have subsided and may be waiting for the US administration to announce tariffs on the bloc before easing. Markets expect one more cut by the end of the year.
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