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Daily Economic Update
20.07.2025US: Upbeat data underline a resilient economy and drive US equity markets to record high. The latest data releases came in better than forecast, showing that the US economy remains robust despite lingering uncertainty and worries about higher import tariffs. Retail sales in June rebounded by a more than expected 0.6% m/m (3.7% y/y) after two straight months of monthly decline as consumer sentiment improved amid buoyant equity markets and milder inflation worries. A narrow measure of retail sales (excluding auto, gas station, food services and building material) also increased by 0.5% m/m from a downwardly revised gain of 0.2% in May. The University of Michigan Consumer Sentiment index rose further to a five-month high of 61.8 in July from 60.7 in June, supporting the household spending outlook. Importantly, consumer inflation expectations for the year ahead moderated sharply to 4.4% and to 3.6% for 5–10-year horizons from June’s 5% and 4%, respectively. Consumers were generally optimistic about their personal finances, likely helped by rising stock markets and newer/expanded individual income tax breaks passed by the Trump administration earlier this month. Moreover, labor market conditions also improved as initial weekly jobless claims (w/e July 12) dropped to a two-month low of 221K from 228K the previous week. However, continuing claims (w/e July 5), at 1.96mn, stayed broadly flat near their highest since November 2021, suggesting that the job market may be gradually loosening but not yet flashing recessionary signals. Amid positive data, the S&P 500 index hit a new record high on Friday before closing almost flat d/d despite the looming threat of hikes in import tariff rates on most trading partners on August 1. Resilient economic prints also helped pare Fed interest rate cut expectations, with markets seeing nearly even chances of a 25 bps cut at the Fed’s September meeting (following a hold at the meeting later this month) while pricing in one to two cumulative down moves by the end of the year.
UK: Weak labor data with falling payrolls, higher unemployment and slowing wage growth to drive policy rate cuts. UK payrolls (based on employment tax records) fell further (now down for 10 months out of the past 11), by 41K in June from a revised drop of 25K in May amid elevated cost burdens on employers following a rise in national insurance contributions. However, provisional payroll figures tend to see significant revisions, and accordingly, June’s numbers were revised upward from an earlier reported massive fall of 109K. The unemployment rate climbed to a nearly four-year high of 4.7% in Mar-May from 4.6% in Feb-Apr, contributed by falling inactivity as more people joined the labor force. The rate of inactivity in Mar-May was at its lowest since the early days of the pandemic, helping ease pressure on wage growth, with regular pay growth (excluding bonuses) in Mar-May falling to a nearly three-year low of 5% y/y from 5.3% in Feb-Apr and total pay growth (including bonuses) also down to 5% from 5.4%. We think that the continued decline in the inactivity level among the working age population should bode well for further moderations in wage rises ahead, lowering the bar for the Bank of England to continue with its easing monetary stance. Meanwhile, job vacancies dropped further to an over four-year low of 727K in Apr-Jun from 738K in Mar-May. Overall, weak employment data, especially softening wage pressure, and a faltering economy should help overcome inflation concerns, with markets expecting a 25bps bank rate cut at the MPC meeting next month and combined two rate cuts by the end of 2025.
Japan: Core inflation cools in June but stays above the BoJ target. Inflation softened in June to 3.3% y/y from May’s print of 3.5%, remaining above the Bank of Japan (BoJ) target for 39 straight months. Similarly, core inflation (excl. fresh food) slowed to 3.3% from 3.7% in the previous month aided by government subsidies for energy prices during the summer. Meanwhile, the “core-core” measure, which excludes fresh food and energy, edged up in June to 3.4% y/y reaching a 17-month high as inflationary pressures persist in the non-fresh food category (8.2% versus 7.2% in May) and other items that are not subsidized by the government. Softer inflation came in line with BoJ expectations and was helped by the dispatch of rice stocks in an effort to stem the surge in rice prices (100% y/y). Underlying inflation remains elevated and could overshoot the BoJ forecast (2.2% in FY2025) if yen depreciation persists (currently at JPY148.8/$). BoJ governor Kazuo Ueda said earlier that the bank will be more cautious in hiking rates to ensure that underlying inflation is driven by domestic demand and higher wages. However, the bank is grappling with growth concerns over US tariffs and the potential impact of the Prime Minister’s governing coalition losing its majority in the upcoming upper house elections, complicating the decision about the timing of the next rate increase. The BoJ is expected to hold rates in its meeting on July 31st while raising its inflation forecasts in July’s outlook report.
Egypt: IMF cites need to accelerate structural reforms. In the recently released article IV review, the IMF mentioned that Egypt had made progress in stabilizing the economy, with a steadier exchange rate and lower inflation following the devaluation of the EGP in March 2024. However, continued reform effort will be needed to consolidate recent gains and to ensure the economy is on a more stable footing with regards to growth, price and FX stability, and social welfare. This includes the mobilization of domestic public revenues, reducing the role of the public sector in the economy, and inflation targeting under a flexible exchange rate regime. Additionally, the IMF stressed the need to implement market-based fiscal strategies, adopt policies to promote the growth of the private sector, and the implementation of structural reforms to enhance governance and transparency, as well as competition between firms (levelling the playing field). These efforts will help Egypt transition from a phase of stability to a broader economic transformation, preventing a relapse into another economic crisis and ensuring more consistent and inclusive growth over the medium term. The report mentioned a lower primary fiscal surplus target of 4% of GDP (from 4.5%) in FY25/26 to allow the implementation of social support programs, with considerations for debt sustainability, and 5% of GDP in FY26/27 in line with previous commitments.