Muzinich Weekly Market Comment: Markets shrug off tariff deadline

July 28, 2025

If you have any feedback on this article or are interested in subscribing to our content, please contact us at opinions@muzinich.com or fill out the form on the right hand side of this page.

--------

In our latest roundup of the key developments in financial markets and economies, it was another positive week for risk assets, despite the looming August 1 deadline for international trading partners to reach tariff agreements with the US.

Risk assets advanced again last week, buoyed by progress on global trade negotiations, a positive start to US earnings season, and improving economic data across several regions. The rally was broad-based, with equities up and credit spreads tightening. High yield credit outperformed investment grade, helped by lower volatility and strong carry. Global high yield returned 0.41%, led by emerging markets (0.51%) and Europe (0.38%). Investment grade markets also rose, with US IG leading the way, returning 0.30%.

In rates, global bond yields moved modestly higher, retracing part of the decline seen in the previous week. The US Treasury curve flattened slightly, while the Bund curve remained broadly unchanged. On the equities front, Japan stood out with a weekly gain of 4.3%, as the positive reaction to US trade negotiations offset political uncertainty after the ruling coalition lost its majority.^[1]

Trade talks advance, but risks persist

Markets drew confidence from progress in US trade talks, particularly with the European Union and key Asian partners. The White House formally announced trade agreements with Indonesia, the Philippines, and Japan, with a 19% tariff rate for Indonesia and the Philippines, and 15% for Japan. The US-Japan agreement also included a US$550 billion investment fund and reduced the tariff on Japanese auto exports to 15%, well below the 25% imposed on Canada and Mexico. The announcement followed recent approval for Nippon Steel to acquire US Steel, conditional on the US government receiving a “golden share”.^[2]

On Sunday, the US and EU reached an agreement on the framework for a trade deal.^[3] The US will impose a baseline 15% tariff rate on nearly all EU imports, including key sectors such as autos (currently taxed at 27.5%), while decisions on specific tariffs for semiconductors and pharmaceuticals will follow in two weeks. A zero-tariff arrangement was agreed for aircraft and components, select chemicals, generic drugs, semiconductor equipment, certain agricultural goods and critical raw materials, with potentially more categories to follow.

Tariffs on European steel and aluminium will remain 50% for the time being, although these are expected to transition into a quota system. The deal also involves major spending commitments: the EU has pledged US$750 billion in purchases of oil, gas, nuclear fuel and chip and military equipment over Trump’s second term, while European companies could invest US$600 billion into the US during the same period.

As for countries that have still not signed agreements, US Treasury Secretary Scott Bessent emphasised that “high quality deals” would take precedence over strict timelines, suggesting a potential extension of the August 1 deadline for countries engaged in constructive talks. However, he also warned that failure to reach agreements could trigger significantly higher tariffs, reinforcing the administration’s hardline negotiating stance.^[4]

ECB presses pause button

The European Central Bank kept policy rates unchanged at its July meeting, in line with expectations.^[5] But President Lagarde’s comments in the post-meeting press conference were interpreted as more hawkish than anticipated. She downplayed concerns about euro strength dragging inflation below target and signalled a willingness to tolerate some temporary undershooting of the 2% goal.^[6]

Lagarde pointed to improving data, particularly July’s flash PMIs, which showed a rebound in services and signs that manufacturing may have bottomed.^[7] However, regional divergence persists, with France continuing to lag while Germany shows signs of emerging from stagnation. The ECB also acknowledged the supportive role of rising real disposable income and private sector demand across the bloc. Upcoming fiscal stimulus in Germany is expected to add further support.

While the decision to hold rates was unanimous, the likelihood of a cut in September has decreased. The ECB appears willing to pause and assess how economic and trade developments evolve. The EU-US trade agreement could further reduce the case for near-term easing.

US data paints mixed picture

In the US, economic data offered a mixed picture. The S&P Global Flash Composite PMI rose modestly in July, driven by better services activity, but the manufacturing reading slipped further below 50, indicating ongoing contraction.^[8] Corporate earnings, however, have broadly surprised to the upside. With around 30% of the S&P 500 having reported, results have supported the index’s continued climb to record highs.^[9]

Markets will keep a keen eye on this week’s Federal Reserve meeting. While no change in the policy rate is expected, recent comments from a few voting members of the Federal Open Market Committee have indicated support for a potential cut. The accompanying press conference will be closely watched for any adjustment in the Fed’s tone, particularly as its Chair, Jerome Powell, continues to come under fire from the US administration.^[10]

Stablecoins: Regulation opens door to new source of demand for Treasuries

In a development that may have long-term implications for Treasury demand, President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoin Act (GENIUS Act) into law on July 18.^[11] The legislation allows for regulated issuance of stablecoins by banks, fintechs, and even large retailers, provided they are fully backed by liquid, risk-free assets such as short-dated US Treasuries.

The stablecoin market has already grown substantially - over 60% year-on-year to reach a total market cap of US$265.2 billion.^[12] Analysts suggest that if adoption accelerates as projected, stablecoin issuers could collectively hold over US$1 trillion in Treasuries by 2030, surpassing China’s current holdings.^[13]

The week ahead

As well as the Fed meeting, investors will be keep a watchful eye on economic data releases for clues on the impact of tariffs on activity and potentially policy.

In Europe, the release of Q2 GDP data may show a modest contraction following a strong Q1, while preliminary July inflation is expected to reflect base effects in the headline figure and stability in core inflation.

Final PMI readings will provide further insight into regional growth momentum, especially in peripheral economies. With tariff talks ongoing and global monetary policy paths in flux, the next several weeks could prove pivotal in shaping investor expectations for the remainder of 2025.

References

[1] NHK World Japan, ‘Election Japan: Ruling coalition loses majority,’ July 21, 2025
[2] The Peterson Institute for International Economics, ‘Trump's trade war timeline 2.0: An up-to-date guide,’ as of July 25, 2025
[3] Reuters, ‘Key elements of EU-U.S. trade deal agreed on Sunday,’ July 28, 2025
[4] CNBC, ‘U.S. Treasury Secretary Scott Bessent Speaks with CNBC’s “Squawk Box” Today,’ July 21, 2025
[5] European Central Bank, Monetary Policy Decisions, July 24, 2025
[6] European Central Bank, Monetary Policy Press Conference, July 24, 2025
[7] S&P Global, HCOB Flash Eurozone PMI,’ July 24, 2025
[8] S&P Global, ‘S&P Global US Flash PMI,’ July 24, 2025
[9] LSEG I/B/E/S, ‘S&P 500 Earnings Insight,’ July 24, 2025
[10] Bloomberg, ‘Trump Turns to Familiar Playbook to Attack Powell: ‘Flood the Zone,’ July 25, 2025
[11] The White House, ‘President Donald J. Trump Signs GENIUS Act into Law,’ July 18, 2025
[12] DeFiLlama, Stablecoins market cap, as of July 25, 2025
[13] Citi Institute, ‘‘Digital Dollars,’ April 2025

 

Past performance is not a reliable indicator of current or future results.

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of July 28, 2025, and may change without notice. All data figures are from Bloomberg, as of July 25, 2025, unless otherwise stated.

--------

Important Information

Muzinich & Co.”, “Muzinich” and/or the “Firm” referenced herein is defined as Muzinich & Co. Inc. and its affiliates. This material has been produced for information purposes only and as such the views contained herein are not to be taken as investment advice. Opinions are as of date of publication and are subject to change without reference or notification to you. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments and the income from them may fall as well as rise and is not guaranteed and investors may not get back the full amount invested. Rates of exchange may cause the value of investments to rise or fall. Emerging Markets may be more risky than more developed markets for a variety of reasons, including but not limited to, increased political, social and economic instability, heightened pricing volatility and reduced market liquidity. Any research in this document has been obtained and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and no assurances are made as to their accuracy. Opinions and statements of financial market trends that are based on market conditions constitute our judgment and this judgment may prove to be wrong. The views and opinions expressed should not be construed as an offer to buy or sell or invitation to engage in any investment activity, they are for information purposes only. Any forward-looking information or statements expressed in the above may prove to be incorrect. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that the objectives and plans discussed herein will be achieved. Muzinich gives no undertaking that it shall update any of the information, data and opinions contained in the above.

United States: This material is for Institutional Investor use only – not for retail distribution. Muzinich & Co., Inc. is a registered investment adviser with the Securities and Exchange Commission (SEC). Muzinich & Co., Inc.’s being a Registered Investment Adviser with the SEC in no way shall imply a certain level of skill or training or any authorization or approval by the SEC.

Issued in the European Union by Muzinich & Co. (Ireland) Limited, which is authorized and regulated by the Central Bank of Ireland. Registered in Ireland, Company Registration No. 307511. Registered address: 32 Molesworth Street, Dublin 2, D02 Y512, Ireland. Issued in Switzerland by Muzinich & Co. (Switzerland) AG. Registered in Switzerland No. CHE-389.422.108. Registered address: Tödistrasse 5, 8002 Zurich, Switzerland. Issued in Singapore and Hong Kong by Muzinich & Co. (Singapore) Pte. Limited, which is licensed and regulated by the Monetary Authority of Singapore. Registered in Singapore No. 201624477K. Registered address: 6 Battery Road, #26-05, Singapore, 049909. Issued in all other jurisdictions (excluding the U.S.) by Muzinich & Co. Limited. which is authorized and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3852444. Registered address: 8 Hanover Street, London W1S 1YQ, United Kingdom.