India's RBI held rates unchanged at 5.5%

India’s RBI held repo rates unchanged at 5.5%. In the June RBI policy, the central bank’s MPC surprised with a 50 bps cut in the repo rate to 5.50% from 6%. The MPC changed the policy stance to ‘Neutral’ from ‘Accommodative’ and also slashed the Cash Reserve Ratio (CRR) by 100 bps to 3% from 4%.

The ISM Services PMI for July 2025 disappointed significantly, dropping to 50.1 versus expectations of 51.5 and down from June’s 50.8. While the index remained in expansion territory for the 12th time in 13 months, the deceleration highlighted mounting economic pressures. Key components showed mixed signals with concerning trends. Business Activity fell to 52.6, New Orders declined to 50.3, while Employment contracted further to 46.4. Most alarming was the Prices Paid Index, which surged to 69.9% - the highest since October 2022 - creating stagflationary conditions. International trade components collapsed dramatically, with New Export Orders and Imports both shifting into contraction territory as tariff tensions impacted global trade flows. The average US tariff rate has reached 18.3%, the highest since 1934.

The U.S. trade deficit fell to USD 60.2 bn in June 2025, its smallest since 2023, after a 16% drop from May’s revised USD 71.7 bn. Imports declined 3.7% to USD 337.5 bn, with consumer goods dropping USD 8.4 bn, pharmaceutical imports down USD 9.6 bn, industrial supplies by USD 2.7 bn, and automotive imports by USD 1.3 bn. Exports dipped 0.5% to USD 277.3 bn, though capital goods exports rose 4.7% and agricultural exports climbed 4.0%. The goods deficit with China shrank by 33% to USD 9.4 bn in June after months of triple-digit tariffs and a temporary easing agreement set to expire August 12. The services sector contributed a USD 25.7 bn surplus, led by travel and finance.

US President Donald Trump has announced plans to impose significant new tariffs on both pharmaceutical and semiconductor imports. For pharmaceuticals, he indicated a stepped approach: tariffs start small but would escalate to 150% within 12 to 18 months, and could ultimately reach 250%. These measures are intended to pressure companies to manufacture more pharmaceuticals domestically. Simultaneously, Trump stated that tariffs on semiconductors and chips will also be introduced, with specific rates yet to be disclosed. These actions reflect his broader strategy to incentivize U.S.-based production in high-value sectors and are part of an overall aggressive trade policy.

Today’s Economic Data and events

12:30 S&P Global UK Construction PMI Forecast: 48.8

15:00 US MBA Mortgage Applications

Fixed Income

US Treasury yields moved modestly higher despite the weak economic data. The 2-year Treasury yield closed at 3.716%, rising 3 basis points, while the 10-year yield ended at 4.20%, up less than 1 basis point. 10-year Treasury yield is little changed in wake of services PMI data. The minimal movement in longer-dated bonds reflected traders balancing growth concerns against persistent inflation, with the services prices jumping to 69.9.

FX

The dollar index (DXY) closed down 0.04% at 98.782. The Euro strengthened, ending up 0.03% at 1.1575, while GBP gained 0.09% to close at 1.3299. The Japanese yen rose 0.36% to 147.62 against the dollar.

Equity Markets

Major US stock indices declined as investors digested the concerning services sector data. The S&P 500 fell 0.49% to close at 6,299.19, while the Dow Jones dropped 0.14% to 44,111.74. The NASDAQ fell 0.65% to 20,916.55.

Locally, DFM closed up 0.67%, ADX gained 0.32%, and Saudi Arabia’s Tadawl closed 0.76% higher.

Commodities

Oil prices remained under pressure amid ongoing market concerns. Brent declined 1.63% to USD 67.64/b and WTI closed down 1.70% to 65.16/b.

Gold prices continued to rise, increasing 0.21% to USD 3,380.60 per ounce. Silver also continued making gains, closing 1.09% higher at 37.82 per ounce.