Global Markets Retreat From Highs as Tariff Tensions Resurface

A Week of Records and Reversals

The second week of July 2025 delivered a stark “tale of two halves” for global financial markets, as initial optimism gave way to a wave of anxiety. Early in the week, major stock indices, particularly in the United States, climbed to new record highs, buoyed by the lingering effects of strong corporate earnings and hopes for stable interest rate policies.¹ The S&P 500 and Nasdaq Composite both notched all-time peaks on Thursday, continuing a multi-week winning streak.² However, this momentum came to an abrupt halt on Friday. A sharp reversal pulled markets into negative territory for the week, driven by the sudden re-emergence of geopolitical risk as a primary concern for investors.⁴

The catalyst for this shift in sentiment was a series of aggressive trade policy announcements from the U.S. administration, which rattled confidence not just on Wall Street but across trading desks in Europe, Asia, and Oceania.¹ While the initial actions were aimed at specific countries, the broader threats signalled a potential escalation of global trade conflicts, forcing investors to re-evaluate economic outlooks. This report will dissect the week’s key events, exploring the impact of renewed trade tensions, the divergent paths of central bank policies, mixed economic data, and the standout performance of alternative assets like Bitcoin that bucked the downward trend in traditional markets.

The Tariff Tightrope: US Trade Policy Rattles Global Confidence

The week’s optimistic trajectory was derailed by a volley of trade announcements from the Trump administration that “spooked investors” and “triggered investor caution”.⁴ The most significant development was the escalation of trade tensions with a key ally, Canada. The administration announced it would increase tariffs on Canadian imports to 35%, up from 25%, with the new rate set to take effect on August 1.⁴

The scope of the trade offensive appeared to widen beyond North America. The administration signalled its intent to impose potential blanket tariffs of 15% to 20% on most other trading partners, including major economies like Japan and South Korea.⁸ Further actions included a 50% tariff on copper imports from Brazil and new restrictions on Chinese e-commerce platforms, illustrating a multi-front approach to trade policy that left few regions untouched.³

The market’s reaction to this news was complex, revealing a tension between immediate fear and a growing sense of fatigue. While the initial sell-off was sharp, some analysts noted the response was “surprisingly muted” compared to past trade flare-ups, suggesting that markets may be growing “desensitised” to the constant stream of tariff announcements.⁵ This indicates that investors are becoming more adept at distinguishing between political rhetoric intended as a negotiating tactic and concrete policies that will directly impact corporate earnings. The market has, to some extent, “adjusted to the unpredictability of Trump’s rapidly shifting tariffs,” but it is by no means immune to the risks they pose.⁵

This dynamic was clearly visible in how the broad macroeconomic risk translated into specific company valuations. The US-Canada tariff news had a direct and immediate impact on firms with significant cross-border exposure. Shares of human resources software provider Dayforce (DAY), which has a major operational presence in Toronto, fell 5.2%.² Similarly, shares of copper mining giant Freeport-McMoRan (FCX) dropped 2.3% on concerns over its exposure to new commodity tariffs.⁴ These examples provide a clear illustration of how abstract geopolitical decisions create tangible financial consequences for individual companies.

Wall Street’s Winning Streak Snapped

The renewed trade anxiety was enough to halt Wall Street’s upward momentum, snapping three-week winning streaks for all three major U.S. indices.² The S&P 500, after setting a record high on Thursday, finished the week with a modest loss of 0.3%. The tech-heavy Nasdaq Composite also gave back 0.1% for the week, while the Dow Jones Industrial Average was the biggest loser, falling 1.0%.²

Adding to the pressure on stocks was a notable move in the bond market. The yield on the 10-year Treasury note rose to 4.42% by the end of the week, up from 4.34% on Thursday.¹ This created a complex market signal. Typically, in a “risk-off” environment where investors are selling stocks due to economic fears, they buy safe-haven assets like government bonds, which pushes bond prices up and their yields down. The opposite occurred this week. The concurrent fall in stocks and rise in bond yields suggest that investors interpreted the new tariffs primarily as an inflationary threat. Tariffs increase the cost of imported goods, which can feed into higher consumer prices. Bond investors, fearing that this inflation would erode the future value of their fixed-income payments, demanded higher yields as compensation. This dynamic reveals a market torn between fears of an economic slowdown, which is bad for stocks, and fears of renewed inflation, which is bad for bonds.

The week’s trading also highlighted significant divergence at the sector and stock levels:

• Decliners: Airline stocks, which had soared earlier in the week after a strong earnings report and optimistic guidance from Delta Air Lines (DAL), reversed course sharply on Friday. Shares of United Airlines (UAL) and Delta fell 4.3% and 2.7% respectively, as profit-taking combined with renewed anxiety about the economic outlook.² In the fintech space, PayPal (PYPL) shares plunged 5.7% following reports that JPMorgan Chase (JPM) plans to begin charging for access to its customer data, a move that could fundamentally alter the operating model for many financial technology companies.² Casino operator Caesars Entertainment (CZR) also declined after disappointing regional gaming revenue reports from Iowa and Indiana pointed to potential weakness in consumer discretionary spending.²
• Advancers: The energy sector was a bright spot, with shares of oilfield services firms Halliburton (HAL) and Baker Hughes (BKR) advancing 4.2% and 2.5% respectively. Their gains were fueled by a nearly 3% rise in crude oil futures on Friday, driven by strong summer travel demand.² Among tech giants, Nvidia (NVDA) continued to defy the broader market trend, with its shares rising and its market capitalisation briefly surpassing the $4 trillion mark for the first time, a testament to the powerful secular trend of artificial intelligence.² Corporate activity also drove gains, with Kraft Heinz (KHC) rising on reports of a potential restructuring and Levi Strauss (LEVI) surging after posting strong earnings and raising its full-year guidance.²

European Markets Stumble on Trade Fears and Economic Woes

The shockwaves from the U.S. tariff announcements quickly spread across the Atlantic, causing European markets to stumble at the end of the week. On Friday, Germany’s DAX 40 index fell 0.6%, France’s CAC 40 lost 0.5%, and the pan-European STOXX 50 and STOXX 600 indices both declined by nearly 0.5%.⁹

However, the weekend decline tells only part of the story. Despite the Friday losses, major European benchmarks were on track to post strong weekly gains, with the STOXX 50 and STOXX 600 advancing 2.9% and 2.2% respectively for the week.⁹ The UK’s FTSE 100 also managed to touch a new record high early in the week before retreating.¹² This suggests that European markets had their own positive momentum, likely driven by the European Central Bank’s decision to cut interest rates in June, which provided a bullish tailwind for equities.¹³ The US tariff news acted as a late-week external shock that interrupted, but did not entirely erase, this underlying strength.

UK in Focus: A Stagnant Economy Faces a Difficult Choice

The economic picture in the United Kingdom appeared particularly bleak, with a string of disappointing data releases from the Office for National Statistics (ONS) painting a picture of a stagnating economy.

• GDP: The UK economy unexpectedly contracted by 0.1% in May, marking the second consecutive monthly decline after a 0.3% fall in April. This result surprised economists, who had forecast 0.1% growth.¹⁵
• Industrial Production: Monthly production output fell by a sharp 0.9% in May. This was driven by a 1.0% drop in manufacturing output and a 3.2% fall in the mining and quarrying sector.¹⁸
• Trade: The UK’s total goods and services trade deficit widened significantly in the three months to May, as a large rise in goods imports coincided with a fall in goods exports.²⁰

This weak economic data has solidified expectations that the Bank of England (BoE) will be forced to act. Economists now believe an interest rate cut at the central bank’s August meeting looks “inevitable”.¹⁵ A central bank must balance the need to control inflation with supporting economic growth. With the latest ONS figures providing clear evidence of economic stagnation, the argument for stimulating the economy through monetary easing has grown substantially stronger. The UK’s economic narrative is now dominated by the anticipation of a rate cut as policymakers grapple with a deteriorating domestic outlook, a situation made more complex by external trade pressures.

A Divergent Story Across Asian Markets

Asian markets presented a mixed and divergent picture, demonstrating that the region cannot be viewed as a monolithic bloc. While some markets followed the global downturn, powerful domestic stories in China and India allowed their markets to decouple from the tariff-driven trend.

China’s Stimulus-Fueled Rally

In a stark contrast to the global mood, Chinese markets rallied strongly on Friday. The Shanghai Composite Index rose 1.1% and Hong Kong’s Hang Seng Index surged 1.6%, leading gains across the region.⁶ This rally was directly attributed to “fresh signs of economic stimulus” and “optimism around Beijing’s economic support measures”.⁶

This stimulus is not a broad-based measure but a highly targeted policy initiative. It includes a massive ¥10 trillion debt-swap program designed to free up capital for “New Infrastructure” projects like smart cities and 5G networks.²³ The government is also funnelling significant investment into green technology to meet its “dual carbon” goals and injecting capital into domestic chipmakers through the National Integrated Circuit Industry Investment Fund to bolster technological self-reliance.²³ For investors in China, government policy has proven to be a more powerful market driver than global geopolitical news. The bet is that this state-directed capital will successfully steer the economy through external headwinds, creating unique opportunities in state-supported industries.

Japan’s Cautious Decline

Japan’s Nikkei 225 index ended the week down 0.6%, reflecting a more cautious sentiment.²⁴ The decline was fueled by a combination of factors, including the direct threat of U.S. tariffs—as Japan was named a potential target—and domestic political uncertainty surrounding the upcoming Upper House election and its potential impact on fiscal policy.²⁵

India’s IT-Led Pullback

Indian markets experienced a domestically driven pullback. The BSE Sensex and NSE Nifty indices fell for a third straight session on Friday, closing the week down 1.11% and 1.22% respectively.⁷ The primary catalyst was not global trade fears but a sobering start to the Q1 earnings season. IT services bellwether Tata Consultancy Services (TCS) released an underwhelming earnings report that triggered a broad sell-off in the influential IT sector.⁷

TCS, a key barometer of global corporate technology spending, reported a 3.1% year-over-year decline in revenue in constant currency terms, missing analyst expectations.²⁷ Management cited a “demand contraction” caused by global macroeconomic uncertainty, signalling that clients are postponing non-essential technology investments.²⁷ The news sent TCS shares down 3.46% and dragged the entire Nifty IT index lower.⁷ The Indian market’s decline was therefore a fundamentals-driven event, highlighting investor sensitivity to the health of the global tech cycle ahead of the full earnings season.

Oceania: RBA’s Surprise Rate Hold Dominates Australian Market

In Australia, the week’s main event was a surprising decision from its central bank. The S&P/ASX 200 index edged down 0.3% for the week, with the negative performance largely shaped by the market’s reaction to the Reserve Bank of Australia (RBA).¹⁰

On Tuesday, the RBA announced its decision to hold its cash rate steady at 3.85%.³⁰ The move was a major surprise, as market pricing had implied a 97% probability of a 25-basis-point rate cut, a view shared by the vast majority of economists.³⁰

The RBA’s rationale reveals a paradigm of central bank thinking in the current uncertain environment. In its official statement and subsequent press conference, the board acknowledged that domestic inflation was moderating as desired. However, it cited “elevated” uncertainty regarding the global outlook, particularly U.S. trade policy, as a key reason for its decision. The RBA explicitly stated that it “judged that it could wait for a little more information” before committing to further easing.³¹ Faced with heightened geopolitical risk, the central bank chose to preserve its policy flexibility by pausing. This surprise hold dashed market hopes for immediate monetary easing and contributed to the ASX 200’s negative weekly performance.

Cross-Asset Currents: Bonds, Commodities, and Bitcoin’s Meteoric Rise

While equity markets faltered, other asset classes saw significant movement, most notably Bitcoin. The world’s largest cryptocurrency staged a stunning rally, surging to a new all-time high and briefly surpassing $118,000.² This dramatic move occurred as traditional risk assets like stocks were falling and even safe-haven bonds were under pressure. The rally was attributed to “renewed interest from institutional investors” and “growing confidence in digital assets amid global market volatility”.²² The upcoming “Crypto Week” in the U.S. Congress, where lawmakers are set to debate a regulatory framework for the industry, also likely contributed to the bullish sentiment.⁵ When both stocks and bonds fall, investors often search for non-correlated assets to protect wealth. Bitcoin’s explosive performance suggests it is increasingly being viewed by a segment of the market as a viable alternative store of value or a hedge against both geopolitical and inflationary risk.

In commodity markets, crude oil prices climbed, with futures rising about 3% on Friday, supported by strong summer travel demand and ongoing geopolitical tensions.² This provided a tailwind for energy stocks. Gold, a traditional safe-haven, also saw a modest recovery, rising to around $3,360 per ounce as investors sought shelter from the market turmoil.³³

Conclusion: Navigating a Sea of Uncertainty

The week ending July 11, 2025, marked a decisive turning point for market sentiment. A fragile rally, built on hopes of economic resilience and stable monetary policy, was brought to an end by the potent return of geopolitical risk. Investor focus abruptly shifted from domestic economic data to the inflationary and growth-damping potential of a renewed global trade war.

The week’s events underscored that market reactions are far from uniform. The stimulus-driven rally in China, the earnings-driven slump in India, and the central bank-driven surprise in Australia all demonstrate that powerful domestic factors can cause regional markets to decouple from broader global trends.

Looking ahead, investor attention will now be fixed on two critical catalysts. First is the official start of the U.S. Q2 corporate earnings season, with major banks including JPMorgan Chase, Wells Fargo, and Citigroup set to report.⁵ Their results and forward guidance will provide the first concrete data on how American corporations are navigating the complex economic landscape. Second is the release of U.S. inflation data for June.³⁵ After a week dominated by the inflationary threat of tariffs, the Consumer Price Index (CPI) and Producer Price Index (PPI) will be scrutinized for any signs of accelerating price pressures, which could heavily influence the Federal Reserve’s next policy move and set the tone for markets in the weeks to come.

Disclaimer

This report is for informational purposes only and does not constitute financial or investment advice. The information contained herein has been compiled from sources believed to be reliable, but its accuracy and completeness are not guaranteed. All opinions and estimates expressed in this report are subject to change without notice. Past performance is not indicative of future results. Readers should consult with a qualified financial professional before making any investment decisions.

Reference

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