Weekly Market Update - 5th August 2025

The introduction of global tariffs by the US helped push markets lower last week, as Trump’s 1 August deadline passed on Friday.

Several countries had already signed deals with the US. The UK, for example, signed an early deal that saw a 10% tariff applied to most British exports.

More recently, the EU also signed a deal with the US, meaning EU goods will generally face a 15% tariff. It’s worth noting the deal has proven controversial in Europe and still needs to be signed off by the various EU member states.

Japan and South Korea signed similar deals, resulting in a 15% tariff.

However, following the 1 August deadline passing, other countries are facing more punitive levels. For example:

• Canadian goods not covered by the US-Mexico-Canada Trade Agreement face a 35% tariff when exporting to the US.
• A 39% tariff on Swiss imports.
• Mexico was granted an extension on its tariff deadline of 90 days, but if no deal is reached tariffs could reach 30%.
• Brazil was facing a 10% tariff, but an additional 40% was added for several industries (such as beef and coffee exports) last Thursday.
• US and Chinese negotiations are ongoing, with a current deadline due later in August.

Hetal Mehta, Chief Economist at SJP, described the tariff situation as “lose-lose” from an economic perspective. She noted: “Ultimately US consumers will face higher prices because of them. On the exporter side, what they sell will be more expensive and therefore less competitive.”

As markets digested the reality of the situation, global share prices began to drop, albeit at nothing like the levels seen in April. Ultimately the S&P 500 finished the week down 2.36%.

Inflationary pressures

Before Trump’s inauguration, economists had warned that the widespread use of tariffs would inevitably add inflationary pressures to the US, as these costs would be passed on to consumers.

Initially, the effects were somewhat dampened by companies stockpiling goods before tariffs came into effect. However, these stockpiles could only last for so long. In recent months, these inflationary pressures have started to feed into the data.

According to the US Commerce Department’s Bureau of Economic Analysis, the personal consumption expenditures (PCE) price index was 2.6% for June, the highest number since February. It also marked the third month in a row the figure had risen.

The Federal Reserve (the Fed) uses the PCE price index to help make decisions around interest rates. Given the continued rise in inflation, there was little surprise when they announced no changes to interest rates last Thursday.

That said, there were some developments of note to come from the Fed meeting. One was the two dissents to the vote (both voted in favour of a 0.25% cut). This was the first time this has happened since 1993, and highlighted the difficult position the Fed finds itself in.

Markets also paid attention to comments made by the Fed chair Jerome Powell following the release. He noted: "We have made no decisions about September. We don't...do that in advance."

With the Fed non-committal about the future, markets started to price out the idea of an interest rate drop in September (when the next decision is due).

US economic slowdown?

The view that the Fed wouldn’t change rates lasted about 24 hours before other economic news started to affect the conversation.

Specifically, on Friday, payroll data was released that suggested the US job market was beginning to soften. The US Bureau of Labor Statistics recorded just 73,000 nonfarm jobs being added in July and significantly revised down the number of jobs added in May (from +125,000 to +19,000) and June (from +147,000 to + 14,000).

Complicating the Fed’s decision further has been the somewhat uneven GDP growth recorded by the US so far in 2025.

On first glance, figures released last week make for positive reading, with growth of 3.0% registered over the second quarter (annualised).

However, as ever, the devil is in the detail. This growth followed a 0.5% fall in Q1. Across the first half of the year, US economic activity only expanded by 1.2% annualised, compared to last year’s first-half increase of 2.3%.

Most of the growth last quarter came from a drop in imports into the US. When calculating GDP growth, imports are subtracted from the total to avoid double counting. In Q1, imports increased due to the stockpiling – which dragged down the overall rate of GDP growth. In Q2, with companies sitting on a surplus of goods, and tariffs starting to bite, imports plummeted, lifting GDP growth back into positive territory.

Commenting on the figures, Hetal said: “if you strip out the trade side of it, what you see is that consumer spending has taken a step down from where it was. This also ties in with the cooling jobs market as well and interest rates staying elevated.”

Taken together, the jobs data and the consumer spending suggests the US economy is slowing down.