Market navigator: week of 7 July 2025

Summary

• What happened last week: Trade negotiations intensified as the 90-day tariff moratorium approaches expiration, while robust US economic indicators and China's manufacturing recovery shaped market sentiment.
• Markets in focus: US equities reached historic highs amid extreme greed conditions, Hong Kong markets struggled to maintain key technical levels, and oil prices consolidated.
• The week ahead: Critical monetary policy decisions from the Reserve Bank of Australia and key inflation data from China will drive market direction alongside FOMC meeting minutes.

What happened last week

• Tariff deadline approaches: The 90-day pause on country-specific tariffs expires on 8 July. Recent negotiations with Vietnam reduced the proposed reciprocal tariff from 46% to 20%, though trans-shipped goods will face 40% levies to prevent circumvention. The EU nears agreement to accept a 10% universal tariff in exchange for US concessions on key sectors.
• Resilient US economy: Non-farm payrolls expanded by 147,000 positions, substantially exceeding the anticipated 110,000 increase. The unemployment rate unexpectedly declined to 4.1%, whilst the ISM services purchasing managers' index (PMI) recovered from 49.9 to 50.8, surpassing expectations. These robust indicators drove short-term yields and the US dollar higher as markets reduced July rate cut probability.
• China business activities recover: Latest data indicates manufacturing recovery, with the Caixin PMI returning to expansion territory after contracting below 50 in May. Improvements in the trade environment prompted new orders to increase. However, deflationary pressures persist amid intense market competition.
• Eurozone inflation hits target: Headline year-on-year (YoY) inflation rose from 1.9% to 2.0%, matching the European Central Bank's (ECB) target in June. Core inflation remained at 2.3%. ECB President Lagarde indicated the disinflationary project has achieved its objective. Most traders expect one additional rate cut this year, likely in September, with US trade negotiations and Middle East tensions as key risks.

Markets in focus

US equity investors in 'extreme greed'

Major US equity indices extended their rally last week, with the Nasdaq 100 advancing 1.5% and the S&P 500 gaining 1.7%, both establishing new historic highs. The Dow Jones remains merely 1.4% below its record peak.

Optimism from the latest US-Vietnam trade agreement and robust economic data, including improved non-farm payrolls and PMI readings, provided substantial support to equity markets. However, volatility may intensify this week as the reciprocal tariff deadline approaches. President Trump announced the White House has begun dispatching notification letters to 10-12 countries, outlining new tariff rates ranging from 10% to 70%, with most taking effect on 1 August.

The CNN Fear & Greed Index indicates extreme greed conditions, driven by exceptionally low put/call ratios, strong market breadth, and substantial demand for risk assets. Valuations appear stretched, with the S&P 500's 12-month forward price-to-earnings ratio at 22.9x, compared to the five-year average of 19.9x. This suggests elevated probability of a short-term pullback from current levels.

Technical analysis of the US Tech 100 reveals a decisive break above the 18 February all-time high, suggesting potential for testing the next psychological resistance at 23,000. However, profit-taking following the recent steep rally may drive the index back into the ascending channel below 22,500, which commenced in mid-May, before another upward leg. Immediate support should emerge around 21,500.

Figure 1: US Tech 100 index (daily) price chart

Hong Kong markets grapple with monetary authority interventions

Just when market participants believed the Hang Seng Index (HSI) had established firm footing above the key 24,000 level after seven consecutive trading sessions, the index retreated on Friday, concluding the week 1.5% lower.

Currency weakness created uncertainty for Hong Kong investors. The Hong Kong Monetary Authority (HKMA) conducted four interventions last week totalling HK$59 billion as the HKD breached its weak-side limit of HK$7.85 per USD under the Linked Exchange Rate System. These interventions drove Hong Kong's interbank offered rate (HIBOR) higher, with the overnight rate rebounding to 0.0298% (+46%) and the one-month rate advancing to 0.8588% (+21%). Elevated short-term interest rates may dampen investor appetite for margin lending.

The failure to maintain above 24,000 last week reaffirms this level as substantial resistance from both technical and psychological perspectives. As global market volatility increases amid tariff announcements, the HSI may test the lower boundary of the narrow uptrend channel established from 24 April at approximately 23,500. The emergence of a negative MACD crossover suggests the index faces downside risks. Material support should be found around 22,500. Conversely, a decisive breakthrough above 24,000 could propel the index toward this year's peak at 24,874.

Figure 2: Hang Seng Index (daily) price chart

Oil markets consolidate within technical boundaries

One week following the ceasefire in the Israel-Iran conflict, Iran suspended cooperation with the International Atomic Energy Agency (IAEA), claiming the organisation lost credibility by supporting Western nations during recent hostilities. This development triggered risk sentiments, causing WTI crude oil futures to surge 3% on Wednesday. However, gains quickly reversed following an unexpected increase in US crude inventories and OPEC+ discussions regarding accelerating oil production by 548,000 barrels per day. US crude concluded the week 0.7% lower. IG's Weekend US Crude Oil index dropped as much as 1.4% from Friday's close.

The daily price chart indicates oil prices are compressed between converging trendlines, forming a descending triangle from September 2023's peak and an ascending trend that commenced in May. The ascending trendline should provide material support around $64. Considerable resistance is expected from the 200-day moving average at $67.85, with upside capped by the descending trendline at $75.

Figure 3: US crude oil futures (daily) price chart

The week ahead

The upcoming week presents three pivotal economic releases that could reshape market expectations across major economies. The Reserve Bank of Australia (RBA) takes centre stage on Tuesday. China's inflation data on Wednesday will be closely scrutinised for signs of emerging from its deflationary spiral, with investors monitoring whether consumer prices can finally turn positive after four consecutive months of declining prices that have raised concerns about domestic and foreign demand weakness. The Federal Open Market Committee's (FOMC) meeting minutes on Thursday will provide crucial insights into policymakers' thinking behind recent decisions, offering markets critical guidance on the future trajectory of US monetary policy amid persistent inflation concerns and evolving economic conditions.

At its last meeting in May, the RBA reduced its policy rate by 25 basis points (bp) to 3.85%. The rate cut was accompanied by dovish commentary, highlighting the bank's caution regarding the economic outlook. Simultaneously, the RBA lowered its inflation and growth forecasts while increasing its unemployment rate projection.

Since then, the case for further monetary policy easing has strengthened. The annual trimmed mean inflation declined to 2.4% in May from 2.8%, marking the lowest rate since November 2021. Meanwhile, Q1 gross domestic product (GDP) data showed the Australian economy expanded merely 0.2% quarter-on-quarter (QoQ), below expectations. These factors, combined with ongoing concerns regarding tariffs and trade, may outweigh the RBA's concerns about a tight labour market.

A 25 bp rate cut appears almost certain next week, with expectations for two additional cuts in August and December respectively, bringing the cash rate to 3.1% by year-end. Further dovish signals from the central bank may boost investor sentiment, potentially catalysing advances in the ASX 200.

Figure 4: Australian cash rate target

Key macro events this week

Tuesday 8 July 2025

• 9.30am (HK time) – Australia NAB Business Confidence (June): previous 2
• 12.30pm (HK time) – Australia RBA Interest Rate Decision: previous 3.85%, consensus 3.60%

Wednesday 9 July 2025

• 9.30am (HK time) – China Inflation Rate YoY (June): previous -0.1%, consensus 0.0%
• 9.30am (HK time) – China PPI YoY (June): previous -3.3%, consensus -3.2%

Thursday 10 July 2025

• 2.00am (HK time) – US FOMC Minutes

Friday 11 July 2025

• 2.00pm (HK time) – UK GDP month-on-month (MoM) (May): previous -0.3%, consensus 0.1%

Saturday 12 July 2025

• 11.00am (HK time) – China Balance of Trade (June): previous $103.22B
• 11.00am (HK time) – China Exports YoY (June): previous 4.8%
• 11.00am (HK time) – China Imports YoY (June): previous -3.4%

Source: Trading Economics, Reuters (as of 5 July 2025)