ECB keeps policy rate steady

The European Central Bank kept the deposit rate unchanged at 2%, in line with expectations. Christine Lagarde, President of the ECB, said that the central bank was in a “wait-and-see” position, with the outlook for the bloc “exceptionally uncertain” because of ongoing trade disputes. Markets have reduced their expectation for a rate reduction in the remainder of 2025, down from a 90% probability of one further 25bps cut to around 70%.

The Central Bank of Turkey cut the one-week repo rate by more than expected at their meeting yesterday, reducing it by 300bps to 43%. The bank expects inflation to rise temporarily in July, after slowing to 35.1% y/y in June, as a result of tax increases on goods.

The S&P Global US composite PMI rose in June, increasing from a value of 52.9 to 54.6, its fastest pace of expansion thus far in 2025. The services component drove the movement in the headline measure, increasing 2.3 points to 55.2. In contrast, the manufacturing component dipped into contractionary territory for the first time in 2025.

US initial jobless claims fell slightly in the week ending July 19, reaching 217k, down from 221k the week prior, marking the sixth consecutive week of declines. The outturn was below the 226k the market had been expecting. Continuing claims remained on a gradual upward trend, increasing 4k to 1955k in the week ending July 12, suggesting that those out of work are finding it hard to find positions.

The July flash Eurozone composite PMI rose marginally, increasing to a value of 51.0 from 50.6 in June. There were gains in both the services and manufacturing components, albeit a very small increase in the latter with the measure still remaining below the neutral-50 mark. Notably, there was further price pressure moderation in services, with both the input and output price measures falling.

The provisional UK composite PMI measure fell by more than expected in July, declining to 51.0 from 52.0 the month prior. The UK economy has struggled to gain momentum in the face of uncertainty around trade tariffs, rising employer national insurance contributions and a higher minimum wage. The decline was entirely driven by the services component, which fell to 51.2. The manufacturing index saw a small rise, although remained below 50. The employment index fell further, declining to 45.1 from 46.6 in June, pointing continued weakness in employment.

Today’s Economic Data and Events

10:00 UK retail sales (Jun): forecast 1.2% m/m

12:00 GE IFO business climate (Jul): forecast 89.0

16:30 US durable orders (Jun): forecast -10.5% m/m

Fixed Income

US Treasury yields rose further on Thursday, with lower initial jobless claims seeing traders reassess potential Fed rate cuts. The 2yr yield rose 4bps to reach 3.9162%, and the 10yr yield gained 2bps to 4.3957%.

With the exception of 10yr Gilts, European bond yields saw widespread rises. The 10yr Bund yield rose 5bps to 2.636%. Italian 10yr bonds in particular rose sharply, gaining 9bps to 3.548%.

FX

The dollar gained against a basket of major peer currencies for the first time since the end of last week, with the spot index rising 0.2%. EURUSD fell 0.2% to reach 1.1749, while GBPUSD fell 0.5% to 1.351. USDJPY gained 0.3% to 147.01.

USDTRY rose 0.6% to 40.6976, while USDINR remained broadly flat at 86.4088.

Equity Markets

Strong corporate earnings data helped keep the S&P 500 at recent highs, gaining 0.1% on Thursday. The NASDAQ rose 0.2% and the Dow Jones fell 0.1%.

European equity markets were mixed on the day. The Eurostoxx 50 rose 0.2%, the CAC 40 fell 0.4% and the DAX gained 0.2%. The FTSE 100 increased by 0.9%.

Locally, the DFM rose 0.4%, while the ADX was flat. The Tadawul dropped by 0.4%.

Commodities

Oil futures ended a four-day decline on Thursday, with rising optimism around the possibility of an EU-US trade deal. Brent crude rose 1% to USD 69.18/b and WTI gained 1.2% to USD 66.03/b.

Gold prices declined 0.5% to close at USD 3,368.68 per ounce.