Macro Update – July 2025

In the United States, inflation is expected to rise significantly in the coming months due to higher tariffs and the sharp depreciation of the dollar since the beginning of the year. Nevertheless, the risk of a recession remains low, supported by strong household and corporate balance sheets.

In the Eurozone, the euro’s strong appreciation is likely to push inflation below 2%, giving the European Central Bank (ECB) more flexibility to ease policy if needed. Germany’s planned fiscal stimulus should support growth, though political uncertainty in France and the negative impact of a strong euro on exports remain key risks.

The United Kingdom is facing growing fiscal credibility concerns after the Labour-led government failed to deliver on previously announced spending cuts. Meanwhile, Asia ex-Japan continues to stand out for its solid growth prospects and macroeconomic stability, with moderate inflation and balanced external accounts. Japan could see modest rate hikes if wage growth gains traction, although structural headwinds suggest rates will remain low overall.

Against this backdrop, a cautious approach to equities is warranted, favoring Europe and Asia over the U.S. alongside selective exposure to fixed income in countries with declining inflation and sound fiscal fundamentals.

United States

Inflation is likely to rise in the coming months due to higher tariffs and the dollar’s depreciation. We remain concerned about the country’s weak fiscal position, especially following Trump’s new fiscal package and his pressure on the Federal Reserve. Still, as long as tariff hikes remain moderate and the term premium is contained, the risk of recession remains low.

The Eurozone

The strong appreciation of the euro could drive headline inflation clearly below 2% for the remainder of the year, providing the ECB with greater flexibility to lower interest rates if any signs of economic weakness emerge. Additionally, Germany’s government is moving quickly to approve fiscal stimulus measures, which should help generate a cyclical rebound in the second half of the year. On the risk side, we must closely monitor the political situation in France and the potential negative effects of a strong euro, and higher tariffs, on European exports.

China & emerging Asia

We see very solid growth, especially in relative terms. In 2025, it is likely that emerging Asia will grow at a 4-5% pace, compared to the 1-1.5% expected for the U.S. The region shows enviable macroeconomic stability, with moderate and declining inflation, credible central banks, broadly balanced external accounts, and sustainable fiscal deficits and public debt levels.

Even China, which was expected to be the country most affected by tariffs, has left behind the most catastrophic scenarios and has managed to sustain annual growth rates slightly above 5% in the first half of the year through stimulus measures.

Japan

As long as wages show sufficient strength and the tariff situation remains under control, it is reasonable to expect aggregate demand growth slightly above potential, leading to a sustainable stabilization of inflation around 2%. In that scenario, another rate hike by the BOJ later this year would be very likely. However, we do not expect the terminal rate to be particularly high in this cycle, because even with near-zero nominal rates and an expansionary fiscal policy, Japan’s economy is still struggling to overheat, clearly indicating that the neutral rate in the country is quite low.

Market Outlook & Asset Allocation

Equities
Tight valuations and the presence of significant risks lead us to adopt a slightly more cautious stance on equities. In terms of geographic diversification, we continue to recommend underweighting the U.S. and overweighting both Europe and, especially, Asia ex-Japan, as we see lower tariff-related risks and particularly favourable relative growth prospects.

Government Bonds
The recent drop in long-term yields leads us to prefer a more moderate duration stance. Relatively speaking, we continue to favour the 10-year segment in countries with declining inflation and reasonably strong fiscal positions.

Credit
We continue to favour greater exposure to Investment Grade over High Yield and generally prefer shorter maturities.

Currencies
Although we do not rule out some short-term appreciation if the market begins to price in a more hawkish Fed response to rising U.S. inflation over the summer, we remain negative on the dollar due to the country’s challenging fiscal outlook and political pressures on the Fed’s independence. We are cautious on the yen, given its low carry and Japan’s high public debt levels.

This report has been prepared by AMCHOR Investment Strategies SGIIC, S.A. (“AMCHOR IS”) an entity participated by the Alantra Group and incorporated as an investment firm authorized and supervised by the CNMV, registration number 273 with registered office at Calle Velázquez Nº 166, 28002 Madrid (Spain). 

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