Market navigator: week of 4 August 2025
Global markets retreated as US employment data disappointed and China's manufacturing sector contracted, with Bank of England rate decision ahead.
Summary
- What happened last week: The Fed maintained rates amid elevated inflation while disappointing US employment data and sustained weakness in China's manufacturing sector dominated market sentiment.
- Markets in focus: US equities corrected with the VIX surging above 20, while the Hang Seng Index surrendered gains on weak PMI data and currency interventions.
- The week ahead: Critical policy decisions from the Bank of England and trade data from China will shape market direction, alongside key earnings from tech and healthcare sectors.
What happened last week
- Fed maintains policy stance: The Federal Reserve (Fed) held interest rates unchanged at its July meeting, citing economic uncertainties, moderating growth, and elevated inflation. Q2 gross domestic product (GDP) expanded 3.0% annualised after a 0.5% contraction in Q1, while core personal consumption expenditures (PCE) accelerated to 0.3% month-on-month in June. Governor Kugler's surprise resignation creates an opportunity for Trump to appoint a potential successor to Powell.
- US labour market deteriorates: Non-farm payrolls increased by 73,000, substantially below the 105,000 consensus estimate, while the unemployment rate climbed to 4.2%. Significant downward revisions reduced June's payroll count from 147,000 to 14,000. The disappointing employment data elevated September rate cut probabilities to 95% from 40%.
- China's manufacturing sector remains in contraction: Both official and private purchasing managers' indices (PMI) indicated factory activity contraction in July, driven by declining export orders and subdued domestic demand. The official PMI fell to 49.3, marking the fourth consecutive month below the 50 threshold and the lowest reading since November.
- Trade policy updates implemented: The White House revised tariff schedules affecting 90+ territories, with rates ranging from 10% to 41%. Notable adjustments include South Korea (15% from 25%), India (25% from 26%), and Taiwan (20% from 32%), effective 7 August. Canadian goods face increased 35% tariffs due to inadequate progress addressing illicit drug flows.
Markets in focus
US equity retreats from record highs
Persistent inflationary pressures and deteriorating labour market conditions have intensified uncertainty surrounding Fed monetary policy trajectory. The volatility index (VIX) surged above 20 from the previous week's local trough near 14. The S&P 500 declined 2.4% while the Nasdaq 100 retreated 2.2% during the period.
Individual equity performance diverged significantly based on earnings outcomes. Four Magnificent Seven constituents reported quarterly results. Meta share prices achieved record highs following 22% year-on-year (YoY) revenue growth that exceeded expectations, supported by enhanced artificial intelligence monetisation through advertising platforms. Microsoft advanced 2% as Azure cloud services delivered 39% growth, surpassing analyst estimates. Conversely, Amazon declined 8% as AWS growth lagged key competitors Google Cloud and Azure. Apple exceeded earnings expectations driven by accelerating growth in emerging markets, particularly China, though tariff-related concerns contributed to a 2% Friday decline.
The US Tech 100 exhibits corrective wave characteristics as Thursday and Friday's decline decisively drove the index to the bottom of the ascending trend channel established in mid-May. Failure to maintain support above 22,600 may trigger testing of material level at February's peak of 22,223. However, a reversal from current levels could facilitate a challenge of new highs above 23,800.
Figure 1: US Tech 100 index (daily) price chart
Hang Seng Index surrenders previous gains
The Hang Seng Index surrendered the previous week's gains through four consecutive sessions of negative returns, driven by disappointing China PMI data. The absence of substantial economic stimulus measures from the recent Politburo meeting and uncertainties surrounding the 12 August trade truce expiration further pressured equity performance.
Currency weakness intensified negative sentiment among Hong Kong investors. The Hong Kong Monetary Authority (HKMA) conducted two interventions totalling HK$7.5 billion as the Hong Kong dollar breached its weak-side limit of HK$7.85 per US dollar under the Linked Exchange Rate System. These interventions raised concerns regarding potential Hong Kong interbank offered rate (HIBOR) increases, which could dampen margin lending appetite.
Despite the 3.5% weekly correction, the uptrend channel established from 24 April continues to govern price action. The HSI currently tests support at the channel's lower boundary, likely finding stabilisation near the 50-day moving average (SMA) at 24,195. A breach below this level could precipitate a retreat towards 23,800, while a recovery above 25,000 may drive prices towards the recent peak at 25,736.
Figure 2: Hang Seng Index (daily) price chart
Japanese yen under renewed pressure
Firm US tariff policies and hawkish Fed positioning have strengthened US dollar performance, recording the first monthly gain in 2025. Although recent US-Japan agreements provided greater clarity for the export-dependent economy, the Bank of Japan (BOJ) maintained policy rates unchanged at its July meeting. The central bank emphasised limited urgency for rate increases despite upward revisions to inflation forecasts.
USD/JPY reached four-month highs, touching 150.9 before retreating following Friday's disappointing non-farm payrolls data. The temporary breach above the 200-day SMA indicates increased probability that the prevailing bearish trend may be concluding. Critical price action in coming sessions will determine direction, with sustained movement above the SMA at 148.85 confirming trend reversal, while retreat towards 146 would suggest continued bearish momentum.
Figure 3: USD/JPY (daily) price chart
The week ahead
Critical policy decisions and trade dynamics will significantly influence global economic sentiment this week. The Bank of England's (BOE) interest rate decision on Thursday takes centre stage, with markets anticipating a 25 basis point reduction to 4.0% amid sharp labour market deceleration.
Comprehensive trade data from China and Australia will provide crucial insights into global commerce flows, with China's figures revealing manufacturing hub resilience amid ongoing trade tensions and shifting demand patterns. China's inflation data on Saturday will be particularly significant, especially the Producer Price Index (PPI), which has remained contractionary for 33 consecutive months, reflecting persistent deflationary pressures weighing on industrial sector profitability and investment decisions. Consumer Price Index (CPI) will be scrutinised for domestic demand recovery sustainability, while services PMI readings from China and the US will complete sectoral health assessments across major economies.
Corporate earnings will command significant investor attention, with technology remaining in focus through Palantir and Advanced Micro Devices results, offering insights into artificial intelligence demand trends and semiconductor market dynamics. Pharmaceutical leaders Eli Lilly and Novo Nordisk will be scrutinised for updates on blockbuster diabetes and weight-loss drug portfolios in the rapidly expanding GLP-1 market. Japanese results feature automotive leader Toyota Motor and financial services giant Mitsubishi UFJ Financial Group.
Figure 4: UK employment count vs. inflation rate
Key macro events this week
Tuesday 5 August 2025
- 7.50am (HK time) — Japan BOJ Monetary Policy Meeting Minutes
- 9.45am (HK time) — China Caixin Services PMI (July): previous 50.6, consensus 50.2
- 10.00pm (HK time) — US ISM Services PMI (July): previous 50.8, consensus 51.5
Thursday 7 August 2025
- 9.30am (HK time) — Australia Trade Balance (June): previous A$2.238B, consensus A$3.25B
- 11.00am (HK time) — China Trade Balance (July): previous $114.77B, consensus $103.5B
- 11.00am (HK time) — China Exports YoY (July): previous 5.8%
- 11.00am (HK time) — China Imports YoY (July): previous 1.1%
- 7.00pm (HK time) — UK BOE Interest Rate Decision: previous 4.25%, consensus 4%
Saturday 9 August 2025
- 9.30am (HK time) — China CPI YoY (July): previous 0.1%, consensus -0.1%
- 9.30am (HK time) — China PPI YoY (July): previous -3.6%, consensus -3.2%
Key corporate earnings
(in local exchange time)
Monday 4 August 2025
Tuesday 5 August 2025
Wednesday 6 August 2025
Thursday 7 August 2025
Source: Trading Economics, LSEG (as of 3 August 2025)
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