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Daily Economic Update
24.08.2025US: Powell makes surprising dovish tilt, spurring a market rally. Fed Chair Powell, during his speech at the annual Jackson Hole Symposium, opened the door for a rate cut in September, mentioning that “the shifting balance of risks may warrant adjusting our policy stance” and that “the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance”. He mentioned that the effects of tariffs on consumer prices are now “clearly visible” and likely to accumulate over the coming months but added that “a reasonable base case is that the effects will be relatively short lived—a one-time shift in the price level”. Powell’s surprising dovish tilt versus his message post the FOMC meeting in July lifted financial markets on Friday, with the S&P 500 jumping over 1.5% and yields on USTs falling across the curve (10Y bond yields down by around 8 bps). We do not think an interest rate cut in September is a done deal yet as a hot August CPI inflation report and/or a strong August employment report could still preclude such a cut. Interestingly, the futures markets are currently pricing in around a 75% probability of a 25-bps cut in September, only slightly higher than just before Powell’s speech on Friday but much lower than the near certainty earlier in the month. On Friday, Trump further ramped up his pressure on the Fed, vowing to remove Governor Lisa Cook on alleged mortgage fraud if she did not step down herself. Meanwhile, the S&P Global flash composite PMI in August improved to an eight-month high of 55.4 from July’s 55.1, driven by an unexpected sharp rebound in the manufacturing reading, which surged to an over three-year high of 53.3 from 49.8, while services ticked down to a still robust 55.4 from 55.7. The survey noted a strong increase in hiring, improving business confidence, albeit weak overall, and accelerating price pressures amid higher tariffs. Still tentative, the solid improvement in PMIs underscores that the worst of tariff and other government policy uncertainty may be behind us, with the economy continuing to recover from tariff shocks in prior months. Finally, Trump added furniture to the sectoral tariff list by initiating an investigation on such imports and with the aim to conclude it within the next 50 days.
Eurozone: Manufacturing PMI above 50 for the first time in more than three years. The HCOB Flash Eurozone Composite PMI rose to 51.1 August (50.9 in July), beating consensus expectations of 50.7 and hitting a 15-month high. The manufacturing PMI also rose, entering expansion territory for the first time in over three years after exceeding consensus estimates (49.5) by reaching 50.5 (49.8 in July). This was helped by new orders, which increased for the first time since April 2022. Meanwhile, the services PMI fell from 51.0 in July to 50.7 in August (50.8 consensus), but remained in expansion territory for the fourth consecutive month. On trade, the US and EU revealed details of their newly agreed trade framework, with the EU Trade Commissioner calling it the US’s “most favorable trade deal”. The details were in line with what was communicated before, and included a most-favored nation (MFN) clause, committing the US to apply the higher of the MFN tariff rate or a 15% tariff rate for most EU goods. Other goods such as semiconductors and pharmaceuticals were capped at a 15% tariff rate. The trade partners also agreed to increase EU procurement of US military equipment, while also limiting tariffs on EU autos to 15%, conditional on the EU introducing legislation to remove duties on imports of industrial goods from the US. Overall, the EU has signaled that this deal is just the beginning, with the Trade Commissioner aiming to expand it to cover more sectors in the future.
UK: Business activity strengthens on a solid jump in services, while the government borrows less in July. The S&P Global flash composite PMI in August improved above the market forecast to a 12-month high of 53 from July’s 51.5. While manufacturing weakened further to remain in contraction territory (47.3 from 48), services growth unexpectedly accelerated to 53.6 from 51.8 in July, a one-year high on better demand conditions. The expectation measure also rose to its highest since October 2024, recording gains across segments. However, dampening some of this optimism, employment continued to shrink for the 11th straight month amid higher cost burdens and price pressures strengthened at both input and output levels. Following consensus-beating growth of 0.3% q/q in Q2, business activity has fared better so far in Q3, signaling some further improvement in the economic environment but weak manufacturing may still cap the rise. Meanwhile, public sector net borrowings dropped to £1.1 billion in July (from £22.6bn in June and £3.4bn in July 2024) on higher self-assessed income tax receipts, taking total borrowings in the first four months of the fiscal year to £60 billion (+13% y/y), largely in line with the official projections. Public sector net debt to GDP rose to 96.1% in July versus 94.8% at the end of March 2025, which is close to its highest level since the 1960s, underscoring stretched public finances to support growth when the economy is facing headwinds due to global trade uncertainty and weak domestic employment conditions.
Kuwait: Headline inflation edges up slightly to 2.4% in July but core rate steadies. Consumer price inflation ticked up to 2.4% y/y in July from 2.3% in June as persistent price pressures in the food & beverages category intensified. Indeed, food inflation continued to trend higher, notching its fastest increase in 10 months (5.6%), driven primarily by sharper price increases in the fish & seafood category, which posted its sharpest rise since May 2023 on a combination of unfavorable weather and labor shortages (fishermen). Price rises in the housing services category, the largest by weight in the CPI, reflecting mostly rents, were unchanged from the previous month at 1% y/y. Meanwhile, core inflation, which excludes both food and housing, steadied at 2.1% y/y for the second straight month, with most categories flat or easing from June, including clothing & footwear (3.7%), which fell to its lowest reading since August 2020, and furnishings & household maintenance (3.2%), while the transport category logged less negative deflation (-1.7%). The services & miscellaneous goods category notched the only core component increase in July, likely attributed to higher precious metals prices. We see inflation broadly steady at current levels this year amid fairly subdued consumer spending.
