Tariffs, Interest Rates, and Domestic Resilience: Key Factors Across the Globe

Global financial markets experienced significant volatility over the past week, though the immediate impact of U.S. President Donald Trump’s newly imposed tariffs on multiple countries appeared muted. In this blog, we’ll know in detail what happened last week (August 4, 2025 to August 8, 2025) all across the globe.

US Job Market Report

Despite rising concerns that the tariffs may be exerting long-term damage on the U.S. economy-particularly following a disappointing July 2025 jobs report-investor sentiment remained somewhat buoyant.

This was largely due to expectations of potential interest rate cuts by the Federal Reserve, along with a stream of stronger-than-anticipated corporate earnings from major U.S. firms. The U.S. labor market showed clear signs of deceleration, with only 73,000 nonfarm payroll jobs added in July, continuing a trend of stagnation that began in April.

Meanwhile, the U.S. Manufacturing Purchasing Managers’ Index (PMI) fell to 49.8-the first sign of contraction in manufacturing activity this year. However, overall business activity remained resilient, as the S&P Global U.S. Composite PMI climbed to 55.1 in July from 52.9 in June, supported by robust growth in the services sector.

In political developments, Federal Reserve Governor Christopher Waller has emerged as a leading contender to replace Jerome Powell as Fed Chair, suggesting potential shifts in future monetary policy direction.

UK Cuts Interest Rate

Across the Atlantic, Eurozone inflation remained stable at 2.0% year-on-year in July, while economic indicators showed modest improvement. The Eurozone Composite PMI rose to 50.9, the highest in three months, indicating a slight uptick in output. The Eurozone Manufacturing PMI also edged up to 49.8, suggesting a near-stabilization in factory activity after prolonged weakness.

In the UK, the Bank of England cut its main interest rate by 0.25 percentage points to 4% in response to a weakening economic outlook, even as inflation rose slightly to 2.3% in July. The UK Composite PMI declined to 51.5, while the manufacturing sector remained in contraction despite a slight improvement in the PMI to 48.0. Employment in the private sector also fell at the fastest rate since February.

China Composite PMI Dropped

China’s Composite PMI dipped to 50.8, reflecting slowing momentum, with manufacturing contracting and services driving growth. Expectations are rising for a possible reserve requirement ratio (RRR) cut to inject long-term liquidity.

Japan’s economy saw a modest pickup, with the Composite PMI inching up to 51.6, buoyed by the services sector, though factory output declined again. Minutes from the Bank of Japan’s July meeting revealed division among policymakers over the timing and pace of rate hikes.

India Faces 50% Tariff Threat

Back home, Indian stock markets closed lower, dragged down by tariff-related concerns and persistent foreign fund outflows. The latest blow came from the United States, where President Donald Trump imposed an additional 25% tariff on Indian goods, doubling the total duty to 50%.

This punitive measure was in retaliation for India’s continued import of Russian oil and is expected to have a significant negative impact on key Indian export sectors, including pharmaceuticals, textiles, and automotive components.

The move has coincided with rising U.S. Treasury yields and an expanding U.S. fiscal deficit, which have reduced the attractiveness of emerging market assets, particularly Indian bonds and equities.

RBI Kept the Interest Rate Unchanged

The narrowing yield differential between Indian and U.S. securities has triggered a wave of foreign portfolio outflows, placing pressure on both the Indian rupee and domestic capital markets. In response, the Reserve Bank of India (RBI) maintained the benchmark repo rate at 5.5% and retained a neutral policy stance in its recent monetary review.

This cautious approach reflects the central bank’s intent to manage evolving inflation dynamics without disrupting growth momentum. While core inflation remains relatively stable, the RBI Governor highlighted the risk of a short-term uptick in headline inflation, driven by rising food and fuel costs.

Despite these challenges, some domestic indicators remain encouraging. Above-normal monsoon rains and stable macroeconomic conditions have bolstered rural demand and support the RBI’s forecast of 6.5% GDP growth for FY26. The HSBC India Composite PMI Output Index ticked up marginally to 61.1 in July 2025 from 61.0 in June, indicating a robust rate of expansion, the fastest since April 2024.

Future Outlook

Looking ahead, the Indian equity market is expected to remain range-bound with a downside bias due to a combination of external and domestic headwinds. Persistent FII (foreign institutional investor) outflows, driven by global risk aversion and a stronger U.S. dollar, may continue to drag on market sentiment. So, open Demat account with SMC Global Securities and invest as per your investment objective and risk profile.

Reference:
SMC Global Securities’ Research Team

Author: All Content is verified by SMC Global Securities.