Back on a positive new week for risky assets and on new recommendations sent by the US administration to the Federal Reserve.
The “Risk-on” dominated last week among investors, our favorite feeling indicator, the VIX, passing under the threshold of 15, level reflecting a found confidence, a greater certainty and a mentality of “fear of missing”. The yields of state bonds have progressing slightly, following a more pronounced curve after surprising growth in the United Kingdom, an acceleration of inflation in the United States and the declarations of the American secretary to the Treasury, according to which the Bank of Japan (BOJ) remains “lagging behind” in the fight against inflation.
Surprise, surprise
To the surprise of many investors and residents, the United Kingdom recorded the fastest growth in the G7 countries in the first half of 2025. In the second quarter, the economy increased by 0.3%, after an increase of 0.7%in the first quarter, well above the expectations of consensus and the forecast of the Bank of England (0.1%). Unlike the first quarter, temporarily doped by the anticipation of taxes and customs duties, the second quarter provided a clearer indication of the real health of the economy. In the ventilation of expenditure, public consumption was the main contributor, with an increase of 1.2%, reflecting the revival announced in the budget of October. More worrying, the weakness of household consumption continued, with growth of only 0.1%.
On a monthly basis, production increased by 0.4% in June, with generalized gains in all industries. This will bring a certain relief to the government and Chancellor Rachel Reeves, still under the threat of a sword of Damocles as they strive to maintain budgetary discipline. Although it is too early to conclude that the Bank of England will slow down its current quarterly relaxation pace, the Day to Day interest rate swaps only estimates that the probability of 25 base points in December.
Are prices wrong?
During a week in charge of American data publications, prices occupied the front of the stage, investors seeking to assess the economic impact of customs duties. The consumer price index were in line with expectations, the underlying IPC reaching 3.1% in annual shift. However, rather than being linked to prices, the key factor was the rise in services of services, including plane tickets and cars, the first recording the highest increase in three years.
Production prices have shown a different table, significantly increasing above expectations, suggesting that, so far, it is profits and not consumers who support the cost of prices. The production price index jumped 0.9% in a monthly shift, its highest increase in more than three years.
Most of the components of the inflation indicator favored by the federal reserve, namely basic personal consumption expenses, come from the price reports published last week. The forecasts of economists count on +0.3% monthly-or 3.65% annualized-, well above the target target of the Fed.
In addition, the key report on inflation in Japan will be published this week, with a consensus of +3.1% over a year, against 3.3% before. In a paradox in the face of the United States inflation problems, Scott Bessent urged the Fed to consider a drop of 50 base points in September. The Day to Day interest rate swaps market, however, is currently valuing a 93% probability of a reduction of only 25 bps.
Business at risk
Credit markets showed a classic risk research scheme last week, with High Yield obligations outperforming Investment Grade obligations, emerging markets being the most efficient asset subclass, and incoming flows are increasing. Fund flow data showed 0.47% and 0.39% gains for the US and European high return, respectively, and 0.46% for the debt of emerging markets in strong currency.
The credit of the emerging markets also benefited from an additional boost thanks to the raising of a notch of the note from India by S&P Global, which brought it to BBB. The announcement surprised certain investors given the prospect of higher American prices on India than on its regional peers.
However, S&P was optimistic, believing that the impact of customs duties would be “manageable”, domestic consumption representing 60% of Indian growth. Any punctual shock would probably be marginal and would not compromise long -term perspectives. The agency provides an average annual growth in Indian GDP of 6.8% over the next three years.
This upward revision is based not only on robust economic growth, but also on a full monetary policy framework aimed at controlling inflation (the IPC fell to 1.6% in annual shift in July, its lowest level in eight years) – as well as by the government’s commitment to budgetary consolidation and the improvement of the quality of expenditure thanks to the expansion of infrastructures.
The only asset class not to follow the trend of “animal spirits” was the raw materials, which evolved flat before the summit between Donald Trump and Vladimir Putin in Alaska on August 15, the first meeting between the American and Russian presidents since the invasion of Ukraine by Russia.
The two parties tempered expectations, presenting the meeting as a stage towards a second more substantial meeting which could also include Ukrainian President Zelenski. The positive dynamics from the summit could exert pressure on energy and metals prices, given the role of Russia as a large world producer. Eastern and Western Europe are expected to benefit from the drop in energy costs and the increase in supply, while China and India may lose some of the advantages of Russian energy purchasing at high prices.
Recession, what recession?
In the exchange markets, the Sterling book stood out, supported by the surprisingly strong growth in the United Kingdom in the second quarter. But it was the cryptocurrencies that truly reflected the concept of animal spirits – Bitcoin reached a new historic summit Thursday, briefly exceeding Amazon as the sixth largest worldwide by market capitalization (see “graphic of the week” below).
The actions continued to rise, the FTSE and the S&P 500 reaching new records, while the Bloomberg World Large & Mid Cap index earned more than 1%. The second quarter’s results season in the United States was solid: 81.6%of companies that have published their results exceeded expectations, a figure above average over five years (78%) and average over ten years (75%). At the same time, fears of recession is moderate, the term “recession” appeared only in 16 reports of results of the S&P 500, well below the average over five years (74) and ten years (61).
The latest indicator of the return of “animal spirits” comes from the feeling of small American businesses. The index of the optimism of small businesses of the National Federation of Independent Business increased from 1.7 points to 100.3 in July, beating expectations and indicating that companies estimate that conditions improve.
Graph of the week: nothing replaces gold (market capitalization, in thousands of billion US dollars)
Source: Bloomberg, August 15, 2025. As an indication only.
