KUWAIT: This week saw increased global market activity amidst key economic data releases, central bank signals, trade developments and geopolitical events. In the United States, July data highlighted mixed macroeconomic trends as retail sales rose 0.5 percent MoM following an upwardly revised 0.9 percent gain in June, with nine of 13 categories posting gains, whilst unemployment claims came in at 224K. Inflation remained elevated, with core CPI at 3.1 percent YoY and headline CPI at 2.7 percent YoY, whilst the Producer Price Index jumped 0.9 percent MoM (+3.3 percent YoY), led by services and goods prices.
The dollar Index was last seen at 97.839. Markets focused on the September FOMC meeting, with a 25bps cut expected in swaps data. In Europe and the United Kingdom, geopolitical developments dominated as the Alaska summit concluded without a ceasefire pact. UK GDP rose 0.3 percent in Q2, unemployment held at 4.7 percent, and earnings growth remained at 5 percent, whilst German ZEW sentiment fell sharply to 34.7 and eurozone sentiment declined to 25.1; EUR/USD and GBP/USD both edged up on the week. In Asia-Pacific, China’s growth softened with industrial output at 5.7 percent YoY, retail sales at 3.7 percent, and new yuan loans contracting for the first time in two decades, as USD/CNY reached 7.1845, whilst Japan’s Q2 GDP expanded 1 percent annualized on robust business investment and moderated PPI at 2.6 percent YoY.
The Reserve Bank of Australia cut the cash rate by 25 bps to 3.6 percent, with unemployment at 4.2 percent and wage growth at 3.4 percent; AUD/USD ended the week at 0.6507. Equity markets were mixed, Treasury yields experienced volatility amidst inflation numbers, and Brent and WTI crude fell modestly ahead of the Trump-Putin Alaska summit and weaker Chinese data. Spot gold closed the week at $3,336.19 per ounce, easing after President Trump stated that gold imports would be excluded from US tariffs.
United States and Canada
President Donald Trump confirmed his shortlist for the next Federal Reserve chair has narrowed to “three or four” candidates, with Kevin Hassett, Kevin Warsh, and Christopher Waller emerging as frontrunners. The US Treasury will interview 11 individuals, including long-shot candidates such as David Zervos, Larry Lindsey and Rick Rieder. Trump has criticized current Chair Jerome Powell, whose term ends in May 2026, for resisting deeper rate cuts, reiterating his preference to lower the federal funds rate from 4.25 percent-4.50 percent to 1 percent. Market focus has shifted to the September meeting, with swaps data now assigning an 85 percent probability of a 25 bps cut following softer jobs and inflation data, whilst some officials advocate a 50 bps move. DXY was last seen at 97.839.
Alaska summit
Following the US-Russia summit in Alaska, President Donald Trump is redirecting his diplomatic focus toward Ukraine, with President Volodymyr Zelensky set for an Oval Office meeting on Monday. The Alaska talks, held in secrecy with President Vladimir Putin, did not yield an immediate ceasefire, with Moscow insisting Kyiv cede the Donbas region. Trump signaled Zelensky should consider broader peace negotiations, increasing political pressure on Ukraine amidst ongoing European calls for territorial integrity. European officials emphasized that international borders cannot be altered by force and reiterated the need for a trilateral discussion involving Trump, Putin, and Zelensky. The Alaska summit outcome is seen as advancing Russia’s diplomatic leverage, whilst Zelensky’s forthcoming engagement in Washington will test Ukraine’s willingness to negotiate under intensified US pressure.
US Core CPI at 3.1% YoY
US inflation strengthened in July, with Core CPI rising 0.3 percent MoM (+3.1 percent YoY) and headline CPI up 0.2 percent MoM (+2.7 percent YoY), driven by the largest services cost increase since early 2024. Preliminary UoM consumer sentiment eased to 58.6, whilst one-year inflation expectations rose to 4.9 percent. Producer prices rose 0.9 percent MoM (+3.3 percent YoY), the strongest in three years, led by a 1.1 percent jump in services and 0.7 percent rise in goods. Labour market indicators showed initial jobless claims at 224K and continuing claims at 1.95M, remaining near their highest since 2021, signaling softer hiring and slower re-employment. Treasury Secretary Scott Bessent has called for cumulative Fed easing of 150-175 bps, citing labour market revisions and moderating growth. The Federal Reserve, holding rates at 4.25 percent-4.50 percent, faces balancing persistent price pressures with growing calls for accelerated policy accommodation.
Europe and the UK
The UK economy expanded 0.3 percent in Q2, exceeding the 0.1 percent forecast from both private-sector economists and the Bank of England, with June output up 0.4 percent following minor contractions in prior months. Payrolls fell by just 8,353 in July – the smallest monthly decline since January – bringing total employment losses since October to 165K, notably below earlier estimates. The unemployment rate held steady at 4.7 percent, whilst total earning growth excluding bonuses remained at 5 percent, well above levels compatible with BOE’s 2 percent inflation target. Labour market inactivity fell by 156K to 21 percent. These trends complicate the BOE’s decision on further rate cuts from 4 percent, with markets now pricing a 3.5 percent terminal rate for 2026, reflecting a moderate but resilient economic environment. GBP/USD was last seen at 1.3554.
German economic sentiment falls
The German ZEW Economic Sentiment Index declined sharply to 34.7 in August 2025, down from 52.7 in July and below market expectations of 40. The Current Situation Index also deteriorated, falling to -68.6 from -59.5, against an anticipated -65. In the eurozone, sentiment weakened to 25.1 from 36.1, missing forecasts of 28.1, whilst the Current Situation Index dropped to -31.2 from -24.2. According to the ZEW, the decline reflects disappointment over the recently announced EU-US trade deal, coupled with weaker Q2 performance in Germany. Outlooks for the chemical, pharmaceutical, mechanical engineering, metals, and automotive sectors have worsened. The data signals a broad cooling in investor sentiment, with downward revisions in growth expectations extending beyond Germany to the wider monetary union. EUR/USD was last seen at 1.1706.
Asia-Pacific
China’s economy lost momentum in July, with broad-based weakness across production, consumption, and investment. Industrial output grew 5.7 percent YoY, down from June’s 6.8 percent and the slowest pace since November 2023, whilst retail sales rose 3.7 percent, the weakest this year and below the prior month’s 4.8 percent. Fixed-asset investment in January-July slowed to 1.6 percent, reflecting deeper contraction in the property sector. The urban unemployment rate climbed to 5.2 percent. Credit conditions deteriorated sharply, with yuan-denominated new loans declining by CNY 49.9B (USD 7B), the first contraction since July 2005, as households and corporates focused on debt repayment over new borrowing. Medium- and long-term loans fell, with corporate borrowing down for the first time since 2016. The data signals heightened downside risks, potentially prompting further targeted policy support in coming months. USD/CNY was last seen at 7.1845.
Japan Q2 GDP
Japan’s economy grew at an annualized 1 percent in the April-June quarter, exceeding the 0.4 percent market forecast and following an upwardly revised 0.6 percent expansion in Q1. Growth was driven by a 1.3 percent QoQ rise in business investment, above the 0.7 percent consensus, and a 0.2 percent gain in private consumption, supported by solid wage growth. Net exports added 0.3 percent to GDP, with export volumes rising 2 percent despite higher US tariffs, aided by resilient tourism spending, which increased 18 percent YoY. The data bolsters the case for a potential Bank of Japan rate hike later in 2025, with swap markets currently discounting 17 bps worth of hikes by year end. in October. Producer price index inflation eased to 2.6 percent YoY in July, its slowest in 11 months, signaling moderated upstream cost pressures despite ongoing trade headwinds. USD/JPY was last seen at 147.19.
Kuwait
USD/KWD closed last week at 0.30520.