In July, all sectors showed a broad decline, with every sub-index lower than in June. The US reported the sharpest drop, which affected the overall numbers, largely due to less inventory being built related to tariffs. The global PMI dropped by 1.6 points, led by the US, marking the steepest decline since mid-2022. For the first time in 2025, US PMIs contracted, driven by reduced purchasing and lower demand for raw materials.

Bright Spots and Challenges

Asia, excluding China and Japan, showed positive signs, with India leading the way. On the other hand, production in China and Japan fell. Europe marked its fifth month of growth, but Germany faced its biggest decline since December. In July, commodity prices held steady despite deflation in China, though there were price increases in electrical goods. Significant shortages of stainless steel and aluminum were reported, along with the worst freight capacity shortages since April 2023. Investors are encouraged to do thorough research before making any investments due to the associated risks. Markets and instruments serve for informational purposes and should not be seen as buying or selling recommendations. Investing carries the risk of losses and requires careful consideration. Given that the global PMI has seen its sharpest drop since mid-2022, we expect more market volatility in the weeks ahead. The contraction of the US PMI for the first time this year serves as a critical warning for market indices. We’re considering buying put options on the S&P 500, particularly after the recent US jobs report showed hiring slowing to 150,000, falling well below forecasts.

European Market Divergences

In Europe, we observe a divergence where Germany is shrinking while the larger region is growing, presenting a unique opportunity. Germany’s struggles are evident, confirmed by a recent 1.5% drop in factory orders for July, which may weigh on the entire Eurozone. This leads us to prefer bearish strategies on the German DAX index over other European markets. In Asia, it’s essential to distinguish between leaders and laggards. We are considering bullish strategies, like call options on Indian market ETFs, as India continues to lead in growth. Conversely, with China reporting deflation and lower production, we are looking into put options on China-focused ETFs, reflecting a cautious outlook as July’s industrial production was below 3%. Specific shortages in stainless steel, aluminum, and freight capacity hint at targeted opportunities despite stable overall commodity prices. Freight capacity shortages, now at their highest levels since April 2023, are especially noteworthy. The Freightos Baltic Index increased by 5% in the first week of August, supporting our long positions on select shipping and logistics companies that can charge higher prices. Overall, the conflicting signals from different regions and sectors create a complex trading environment. The significant disparity between strong performers like India and weaker ones like the US and Germany makes broad index investing risky. We believe that options strategies, which can benefit from specific downturns and a general rise in market uncertainty—as indicated by the VIX index—are more suitable for this environment. Create your live VT Markets account and start trading now.

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