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US Economy: Weekly Commentary – July 7, 2025
US Market Review
Adrian Van Den Bok and David Pintado
CEO
US Market Review
Treasury yields rose as rate cut expectations faded. Equities gained broadly. Oil rebounded amid easing supply risks. Gold, Bitcoin climbed; the dollar weakened against the euro.
Treasury yields climbed across the curve last week as investors recalibrated expectations for a potential rate cut at the Federal Reserve’s upcoming meeting. The market value of Treasuries relative to equities fell to its lowest level since the 1960s, highlighting a sustained rotation toward risk assets.
Equity markets recorded broad-based gains last week. Large-cap stocks rose 1.72%, while small- and micro-cap equities outperformed, advancing 3.53% and 4.35%, respectively. The "Magnificent 7" group gained 0.58%. All sectors finished the week in positive territory, with materials leading the rally, up nearly 4%.
The US dollar extended its decline, falling 0.54% against the euro. WTI crude oil rebounded 2.20%, recovering from the prior week’s losses. While demand concerns continue to weigh on global sentiment, supply-side pressures and geopolitical tensions showed signs of easing. The rebound was supported by Iran’s suspension of cooperation with the UN nuclear watchdog and a new US-Vietnam trade agreement, though an unexpected build in US crude inventories capped further gains. Gold rose 1.85%, and Bitcoin edged higher by 0.85%.

US Market Views Synopsis
June’s strong jobs report limits near-term Fed cuts; manufacturing remains weak, services grow modestly, but employment and inflation risks persist.
June’s stronger-than-expected US jobs report, with nonfarm payrolls rising by 147,000 and the unemployment rate dropping to 4.1%, suggests the Federal Reserve is unlikely to cut rates before September despite rising layoff risks and inflation concerns. Job growth was concentrated in government, leisure, hospitality, and education sectors, while traditional industries remained weak. Full-time employment increased significantly, offsetting a decline in part-time jobs, and wage growth was modest. However, rising WARN notices, increased jobless claims, and contraction in manufacturing and services employment signal potential labour market weakening later this year. Government payroll growth may slow due to spending cuts, and private healthcare jobs face pressure from proposed policy changes. Consumer caution threatens discretionary sectors such as leisure and hospitality. Meanwhile, US manufacturing remains weak with ongoing inflation pressures and cautious Fed policy, while services show modest expansion driven by higher activity and orders, but employment lags. Overall, no rate cuts are expected before September, with any future easing dependent on labour market developments and inflation trends.
Labour Market
June’s stronger-than-expected US jobs report, driven by full-time gains, suggests no Fed rate cuts before September, despite rising layoff risks and cautious inflation concerns.
The stronger-than-expected June US jobs report, with nonfarm payrolls increasing by 147,000 compared to the 106,000 consensus and an unexpected drop in the unemployment rate to 4.1%, suggests the Federal Reserve is unlikely to cut interest rates before September despite President Trump’s demands for immediate reductions. While headline figures appear robust, the details present a more nuanced outlook: private sector job growth was weaker than anticipated at 74,000, with much of the job creation concentrated in government (73,000 jobs), leisure and hospitality, and private education and healthcare sectors—these three sectors have contributed 87% of job gains over the past two and a half years, while traditional industries remain subdued. Notably, net job growth was driven primarily by full-time employment, which rose by 437,000, while part-time jobs declined by 367,000, indicating a shift towards more stable work. Wage growth was modest at 0.2% month-on-month, and average weekly hours declined slightly to 34.2 from 34.3, signalling underlying softness.
Risks of layoffs are rising, supported by an increase in Worker Adjustment and Retraining Notification (WARN) notices, upward momentum in jobless claims, and contractionary employment readings in both manufacturing and services sectors, pointing to potential labour market deterioration in the second half of the year and into 2026. Additionally, government payroll growth may slow due to federal spending cuts, including those linked to recent policy efforts to control government size, while private healthcare jobs face vulnerability from proposed healthcare spending reductions under the One Big Beautiful Bill Act. Consumer caution, reflected in falling sentiment, threatens discretionary spending on leisure and hospitality, which could further drag on job creation. Against this backdrop, the Federal Reserve remains cautious, with most FOMC members waiting to assess the inflationary impact of tariffs and requiring clearer evidence of economic slowdown—such as weaker payroll growth and rising unemployment—before adjusting monetary policy. Market expectations for rate cuts this year have moderated from 67 basis points to 53 basis points following the report, with the Fed likely to hold rates steady until at least the September meeting and potentially considering cuts only in the fourth quarter if labour market conditions deteriorate further.
We do not expect any Federal Reserve rate cuts before September and, if there are any—which remains doubtful—they will likely be just one, supported by a solid labour market and ongoing inflation risks.
Business Activity
US manufacturing remains weak with inflation pressures and a cautious Fed outlook; services return to modest growth, driven by higher activity and orders, though employment lags and growth stays slow.
The U.S. manufacturing sector remains in contractionary territory, with the ISM Manufacturing PMI increasing slightly to 49.0 in June but still signalling persistent softness in new orders and employment. Although production edged up modestly, declining backlogs and workforce reductions underscore ongoing structural challenges within the industry. Inflationary pressures continue to weigh heavily, as reflected by the elevated ISM prices paid index at 69.7, driven largely by sustained tariff-related cost increases. Against this backdrop, Federal Reserve Chair Jerome Powell emphasised a cautious, data-driven approach during his recent remarks in Portugal, indicating that a rate cut in July is unlikely amid expectations of rising inflation through the summer. Market sentiment aligns with this view, pricing a low probability of near-term monetary easing and anticipating a more definitive policy response at the September FOMC meeting.
The U.S. services sector experienced a modest rebound in June, with the ISM Services PMI rising to 50.8, surpassing consensus estimates and marking a return to expansion. Business activity and new orders showed strong improvements, climbing to 54.2 and 51.3, respectively, signalling renewed demand. However, employment remained a weak point, falling to 47.2, while input prices eased slightly to 67.5, indicating some relief in cost pressures. Despite the overall improvement, the implied growth rate remains subdued, reflecting a cautious and measured pace of recovery following the near-neutral reading in May.
We expect US manufacturing to face continued headwinds amid persistent inflation and cautious monetary policy, while the services sector shows modest growth, though employment recovery remains sluggish.