Market navigator: week of 28 July 2025
US-Japan trade accord reduces tariffs while equity markets advance on strong earnings, with four Magnificent Seven companies reporting ahead. Markets await Fed and BOJ policy guidance.
Summary
- What happened last week: The US-Japan trade agreement reduced tariffs from 25% to 15%, while the European Central Bank maintained rates after seven consecutive cuts amid trade uncertainty.
- Markets in focus: US equity markets advanced on positive earnings with 84% of reported companies delivering surprises, while the Nikkei 225 surged 4.2% and the Hang Seng Index breached 25,000.
- The week ahead: Critical Federal Reserve and Bank of Japan policy decisions on Thursday, alongside US employment data and Magnificent Seven earnings, will shape August sentiment.
What happened last week
- US-Japan trade accord finalised: The agreement reduced the broad-based tariff rate from 25% to 15%. Automotive and automotive components, representing over 25% of Japan's exports to the US, will benefit from tariff reductions from 27.5% to 15%. Japan committed to investing $550 billion in the US economy and increasing agricultural imports. Investors welcomed the decision as this may set precedent for the ongoing talks with Europe and China.
- Additional trade developments: Indonesia and the Philippines concluded agreements with the US, securing tariff reductions to 19%. India and South Korea are anticipated to be next.
- European Central Bank holds: The ECB held interest rates unchanged at its July meeting following seven consecutive rate cuts. Policymakers offered limited guidance on future monetary policy, citing 'exceptional uncertainty, particularly due to trade disputes'. Market pricing indicates a 50% probability of at least one additional rate reduction in 2025.
- Resilient US economy: Initial jobless claims declined from 221,000 to 217,000, below expectations and indicating robust labour market conditions. The composite purchasing managers' index (PMI) advanced to 54.6 from 52.9 in June, driven by stronger services sector performance. However, services input prices and output price inflation both accelerated, reflecting intensifying tariff-related pressures.
Markets in focus
US equity markets advance on robust corporate earnings
Corporate earnings and trade agreement developments have driven US equity markets higher this week. As of 23 July, 84% of the S&P 500 companies that have reported delivered positive earnings surprises, exceeding the five-year average of 78%.
Tesla disappointed with revenue declining 12% year-on-year (YoY) to $22.5 billion and adjusted earnings falling 23% to $0.40 per share, below the $0.42 consensus. The electric vehicle manufacturer faces challenges including price competition, reduced deliveries, and declining regulatory credit revenue. Despite progress with robotaxi services and plans for more affordable models, investors remain unconvinced. The stock declined 5% post-results, bringing year-to-date returns to -17%.
Alphabet is another Magnificent Seven company that has reported. The search giant exceeded expectations for revenue and earnings growth, driven by robust search business and cloud segment performance. However, management's increased capital expenditure guidance surprised investors. Shares advanced 2% following results.
The US Tech 100 index established new daily records on three trading sessions, concluding the week with 0.9% gains. Technical analysis indicates the bullish trend from mid-May lows dominates price movements. However, overbought conditions suggested by the relative strength index (RSI) potentially indicate a correction towards the channel's lower boundary at 22,700. If current price action follows Wave 3 characteristics of the Elliott Wave Theory, a 200% Fibonacci extension from the 21 April base could potentially drive the index toward 24,718 before Wave 4 correction materialises.
Figure 1: US Tech 100 index (daily) price chart
Nikkei 225 positioned to challenge new highs
Japan experienced a particularly eventful week, with the ruling coalition suffering a significant defeat in the Upper House election, initially creating volatility in long-dated government bonds. However, Japanese financial markets rallied decisively following the US-Japan trade agreement announcement.
The Nikkei 225 gained 4.2% over the week, with automotive manufacturers leading advances, followed by machinery producers. Subaru and Toyota Motor surged 13% and 11% respectively, while automation machinery leader Fanuc rallied 11%.
The trade agreement provided essential political relief following the ruling coalition's substantial Upper House election defeat, as prolonged uncertainty would have further undermined public confidence in the governing alliance.
The Japan 225 index trades just 2.8% below its historical peak achieved twelve months ago. Technical analysis reveals that a new historical level remains achievable if the index can penetrate the resistance level at 41,800 it currently faces. Failure to break through could result in the index retreating to 40,700, with major support level positioned around 39,700.
Figure 2: Japan 225 index (daily) price chart
Hang Seng Index surges beyond 25,000
The Hang Seng Index (HSI) reached its highest level since November 2021, closing 2.3% higher for the week. The Chinese equity market benefited from the US-Japan trade agreement as it diminished investor concerns regarding a 'hard-landing' scenario when the US-China truce expires on 12 August.
The market also anticipates the July Politburo meeting, where President Xi and senior leadership will establish economic strategy for the remainder of 2025. We anticipate enhanced policy support for the struggling property sector. Discussions may also encompass measures to address intense competition and excess capacity in sectors including electric vehicles, solar energy, and food delivery, which have contributed to deflationary pressures.
The HSI's decisive rally above this year's peak at 24,874 carries significant technical implications. The uptrend channel established from 24 April continues to govern price movements. The index retreated after reaching the resistance provided by the channel's upper boundary as overbought conditions emerged. Should the Hang Seng Index manage to breach the upper boundary, it may advance towards 25,800. Conversely, failure to maintain levels above 24,874 could direct the index towards 24,500.
Figure 3: Hang Seng Index (daily) price chart
The week ahead
The forthcoming week presents crucial economic events that could reshape monetary policy expectations and market sentiment across major economies. Both the Federal Reserve (Fed) and Bank of Japan (BOJ) convene pivotal interest rates meetings on Thursday.
US core consumer price inflation has accelerated to 2.9% YoY in June, as high tariff impacts begin manifesting in goods including appliances and apparel. Meanwhile, the employment market maintains resilience as evidenced by the reduction in jobless claims. Despite mounting pressure from the Trump administration on Chair Powell to reduce rates, we anticipate the policy rate will remain at the current 4.25%-4.50% range, while closely monitoring statements for guidance on the possibility of two rate cuts in the remainder of 2025.
China's dual PMI readings will offer essential insights into the world's second-largest economy, with official National Bureau of Statistics (NBS) data on Thursday and private Caixin manufacturing figures on Friday, revealing whether recent stimulus measures are gaining traction amid persistent trade headwinds.
A comprehensive suite of US employment indicators, including Job Openings and Labor Turnover Survey (JOLTS) job openings and the closely-watched non-farm payrolls report, will provide critical perspectives on labour market dynamics that remain central to Fed policy considerations.
On the corporate front, earnings season reaches its crescendo with four members of the Magnificent Seven (Microsoft, Meta, Apple and Amazon), alongside major European banking institutions, reporting results that could significantly influence market sentiment and sectoral rotation trends heading into August.
Figure 4: US unemployment rate vs. core inflation
Key macro events this week
Tuesday 29 July 2025
- 10.00pm (HK time) — US JOLTs Job Openings (June): previous 7.769M, consensus 7.35M
- 10.00pm (HK time) — US Conference Board Consumer Confidence (July): previous 93, consensus 95.5
Wednesday 30 July 2025
- 9.30am (HK time) — Australia Inflation Rate YoY (Q2): previous 2.4%, consensus 2.2%
- 5.00pm (HK time) — Euro Area GDP Growth Rate YoY Flash (Q2): previous 1.5%, consensus 1.2%
- 8.30pm (HK time) — US GDP Growth Rate quarter-on-quarter (QoQ) Adv (Q2): previous -0.5%, consensus 2.5%
Thursday 31 July 2025
- 2.00am (HK time) — US Fed Interest Rate Decision: previous 4.25%-4.50%, consensus 4.25%-4.50%
- 9.30am (HK time) — China NBS Manufacturing PMI (July): previous 49.7, consensus 49.7
- 9.30am (HK time) — China NBS Non-manufacturing PMI (July): previous 50.5, consensus 50.3
- 11.00am (HK time) — Japan BOJ Interest Rate Decision: previous 0.5%, consensus 0.5%
- 1.00pm (HK time) — Japan Consumer Confidence (July): previous 34.5, consensus 35.2
- 8.30pm (HK time) — US Core PCE Price Index month-on-month (MoM) (June): previous 0.2%, consensus 0.3%
- 8.30pm (HK time) — US Personal Income MoM (June): previous -0.4%, consensus 0.2%
- 8.30pm (HK time) — US Personal Spending MoM (June): previous -0.1%, consensus 0.4%
Friday 1 August 2025
- 9.45am (HK time) — China Caixin Manufacturing PMI (July): previous 50.4, consensus 50.3
- 5.00pm (HK time) — Euro Area Inflation Rate YoY Flash (July): previous 2%, consensus 1.9%
- 8.30pm (HK time) — US Non-Farm Payrolls (July): previous 147K, consensus 102K
- 8.30pm (HK time) — US Unemployment Rate (July): previous 4.1%, consensus 4.2%
- 10.00pm (HK time) — US ISM Manufacturing PMI (July): previous 49, consensus 49.6
Key corporate earnings
(in local exchange time)
Monday 28 July 2025
Tuesday 29 July 2025
Wednesday 30 July 2025
Thursday 31 July 2025
Friday 1 August 2025
Source: Trading Economics, LSEG (as of 26 July 2025)
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