July 25, 2025

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US and EU Close In on Tariff Deal Before August Deadline

US and EU negotiators are working around the clock to finalize a trade agreement before the August 1 tariff deadline, with Washington reportedly reducing its proposed levy to 15% from an initial 30% (BBC). Brussels officials say the proposal has injected cautious optimism into talks, but White House spokespeople caution that nothing is final until President Trump signs off.

Europe’s economy and markets hang in the balance: the European Central Bank kept rates at 2% this week, warning that swift resolution of trade uncertainty is crucial to sustaining growth (FT). If no accord is reached, Brussels plans to impose counter-tariffs on US goods worth $93 billion starting August 7, potentially igniting a full-blown trade war.

10-Year Treasury Yield Holds Steady Amid Trade Talks and Robust Data

On Friday, the benchmark 10-year Treasury yield sat at 4.414%, essentially unchanged as investors balanced fresh trade developments and robust U.S. economic data. President Trump’s administration clinched a trade framework with Japan and is now gearing up for talks with the European Union, fueling cautious optimism that tariffs may ease ahead—even as analysts warn companies could pass costs to consumers.

Meanwhile, Treasuries faced pressure from six straight weekly drops in initial jobless claims and a flash PMI composite that rose to a seven-month high of 54.6. Market participants say the tug-of-war between trade optimism and growth concerns will keep yields in a narrow band ahead of key upcoming data and Fed signals.

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Stock Markets Retreat as Trade Optimism Fades and Fed Cut Hopes Dim

Global equities dipped on Friday as hopes for imminent trade breakthroughs and Federal Reserve rate cuts waned.

US initial jobless claims fell to 217,000, the lowest since mid-April, and nonfarm payrolls topped forecasts, suggesting a still-tight labor market.

Rate-cut bets by year-end slid to 42 basis points (Bloomberg), down from over 50 bps.

With the US–EU tariff deadline looming and talks only inches from agreement, investors pared back risk positions, sending Asian benchmarks and European shares lower.

Eurozone Firms Signal Slowing Growth Despite Uptick in Sentiment

Eurozone firms appear caught between renewed optimism and an economy losing steam. In July, Germany’s Ifo business climate index climbed to 88.6—the highest since June 2024—but analysts caution that optimism may outpace fundamentals. Meanwhile, an ECB survey of 72 large euro-area companies reveals slowing activity in both manufacturing and services, with U.S. tariffs and rising Chinese competition weighing on demand.

Key points:

Ifo’s sentiment gauge rose for a seventh straight month, driven by hopes around fiscal stimulus and investment pledges.

ECB contacts report only “very modest” growth in Q2 and Q3, with intermediate goods most affected by trade diversion.

Wage growth expectations eased to 3.3% this year and 2.8% in 2026, reflecting subdued price and hiring outlooks.

Dalio Warns U.S. Faces Debt-Fueled ‘Economic Heart Attack’ Without Deficit Cuts

Billionaire investor Ray Dalio issued his starkest warning yet on the U.S. fiscal outlook, comparing the soaring national debt to an ‘economic heart attack.’ As Washington spends about 40% more than it collects, Dalio cautioned that mounting interest payments—like arterial plaque—could squeeze purchasing power and force new borrowing just to cover existing obligations.

He pointed to the 1991–1998 era of bipartisan discipline as proof that a 4% fiscal adjustment is achievable. Dalio urged lawmakers to trim the deficit from roughly 7% to 3% of GDP through spending cuts, tax changes or interest-rate shifts, warning failure could spark a global Treasury sell-off.

Key takeaway: Without decisive action, debt service costs risk overwhelming the economy and precipitating a systemic breakdown.

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US and EU Near Last-Minute Tariff Deal as August Deadline Looms