Weekly Market Recap

The UK housing market showed signs of losing momentum. The Nationwide Building Society’s house price index fell 0.6% sequentially in April, as demand from first-time buyers fell off after the end of a tax discount on home purchases. Separately, the Bank of England said new mortgage approvals declined for a third consecutive month in March.

According to Lloyds Bank, business sentiment deteriorated in April amid concerns about the impact of US tariffs and higher employment costs. Its widely followed business barometer—a measure of confidence among companies—fell by 10 points to 39%, its lowest level since January.

Positive sentiment early in the week appeared to be driven by a continuation of the prior week’s optimism around de-escalating trade tensions. President Donald Trump rolled back some of his initial tariffs on cars and auto parts, and Commerce Secretary Howard Lutnick announced that a major trade deal was nearing the finish line.

Later in the week, the focus largely shifted to earnings as companies representing nearly 40% of the S&P 500 Index’s market cap reported first-quarter results, including four of the so-called Magnificent Seven names. While several companies have discussed limited visibility into forward guidance, largely driven by uncertain trade policy, sentiment remained generally positive as investors seemed willing to wager that businesses would be able to weather slowing economic growth and tariff-fuelled disruptions.

The week’s busy economic calendar arguably painted a mixed picture of the health of the US economy. On the negative side, the Bureau of Labor Statistics (BLS) reported Tuesday that job openings fell to 7.2 million in March, down from February’s reading of 7.5 million and the lowest reading since September, suggesting that demand for workers may be cooling amid elevated levels of economic uncertainty. On Wednesday, payroll processing firm ADP reported its count of private payrolls increased by only 62,000 in April, a sharp decline from March’s downwardly revised reading of 147,000.

Meanwhile, Friday’s BLS payrolls report surprised to the upside, with employers adding 177,000 jobs in April, down slightly from March but well ahead of estimates for 135,000. The unemployment rate remained stable at 4.2%, while average hourly earnings rose by a modest 0.2% from the prior month. The better-than-expected report was well received and helped send stocks higher on Friday morning.

Elsewhere, the Bureau of Economic Analysis (BEA) released its advance estimate of first-quarter economic activity on Wednesday, which indicated that the US economy contracted at an annual rate of 0.3% in the first quarter, the first negative reading since 2022. The BEA attributed the contraction in gross domestic product (GDP) to “an upturn in imports, a deceleration in consumer spending, and a downturn in government spending.” The sharp increase in imports during the first quarter suggested that businesses spent aggressively ahead of the Trump administration’s impending tariffs, most of which went into effect in early April.

In more positive news, the BEA reported that its Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve’s preferred measure of inflation—was flat month over month in March while consumer spending rose 0.7%. The report suggested that the economy was in a relatively good place to close out the first quarter, with cooling inflation and resilient consumer spending; however, data in the report do not reflect the impacts of the majority of the Trump administration’s recent tariff actions.

Economic growth in the eurozone accelerated in the first quarter to 0.4% from 0.2% in the previous three months. The consensus estimate of economists polled by FactSet had pegged the expansion in GDP at 0.2%. Spain’s economy grew by 0.6% and Italy by 0.3%, exceeding forecasts; Germany and France returned to growth, registering small increases. GDP in Ireland, where activity by large US multinationals can distort the data, rose by 3.2

Meanwhile, eurozone headline inflation remained 2.2% in April—a higher reading than economists had expected. The core rate that excludes volatile food and energy costs rose to 2.7% from 2.4%.

Still, business and consumer optimism indicators have dimmed since the 2 April announcement of US reciprocal tariffs, possibly heralding a downturn in output in the months ahead. The European Commission’s economic confidence indicator weakened to 93.6 in April, its lowest level since December. Meanwhile, its consumer sentiment gauge remained negative, at -16.7, as respondents became more pessimistic about the economic outlook and were less inclined to make major purchases.

On Friday, China said it was considering the possibility of holding trade talks with Washington, indicating a potential thaw in the US-sparked trade war. “The US has recently sent messages to China through relevant parties, hoping to start talks with China,” the Commerce Ministry said in a statement. “China is currently evaluating this.” Bloomberg reported that the ministry’s comments followed reports that China has started to exempt some US goods from tariffs covering roughly USD 40 billion worth of imports. The list of exempted products, which includes products such as drugs and industrial chemicals, has been circulating among traders and businesses over the past week but has not been officially confirmed, Bloomberg reported, citing unnamed individuals.

A pair of indicators gave the first official snapshot of China’s economy after the Trump administration raised total tariffs on most Chinese goods to 145% in April. According to the country's statistics bureau, the manufacturing PMI fell more than expected to 49 from 50.5 in March, marking the worst contraction since December 2023. The non-manufacturing measure of construction and services activity also missed expectations, declining to 50.4 in April from March’s three-month high of 50.8.

China set an economic growth target of around 5% this year, a goal many analysts think will be hard to meet given the trade war. While a trade war with the US would likely shock Chinese exports and economic confidence, Beijing should have the financial capacity to reduce its impact and could roll out fiscal stimulus in stages as it assesses the economic costs of tariffs, TRPI sovereign analyst Chris Kushlis believes.

With the Bank of Japan (BoJ) holding rates steady and downgrading its growth and inflation forecasts, investors’ expectations grew that the timing of the central bank’s next interest rate increase could be delayed. While tentative global trade optimism lifted sentiment, bilateral trade negotiations between the US and Japan remained at the preliminary stage, with both sides searching for common ground, according to Prime Minister Shigeru Ishiba.

Against this backdrop, the yen weakened to JPY 145.0 against the US dollar from JPY 143.7 at the end of the prior week. The yield on the 10-year Japanese government bond fell to 1.26% from 1.34% the previous week.

As expected, the BoJ held interest rates steady at 0.50% and downgraded its forecasts for economic growth and core inflation for the fiscal years 2025 and 2026. Due to a deceleration in the economy, underlying inflation is likely to be sluggish. BoJ Governor Kazuo Ueda warned of extremely high uncertainty on the outlook due to the impact of trade and other policies in each jurisdiction, with risks to economic activity and prices skewed to the downside.

As the timing for underlying inflation to converge around the central bank’s 2% target was pushed back somewhat, investors anticipated that the next rate hike could be delayed but that Japan’s monetary policy normalisation process would not be derailed. The bank emphasised that if its outlook for the economy and prices is realised, it will continue to raise its policy interest rate. While accounting for external risks, the central bank sees the domestic dynamic of a positive wage-price cycle remaining intact, given labour shortages.

The latest economic data releases signalled that Japan’s economy is facing headwinds. Purchasing managers’ index (PMI) data compiled by Au Jibun Bank showed that business conditions in the manufacturing sector continued to weaken in April. Separate data showed that both industrial production and retail sales underwhelmed in March.

Australia’s headline consumer price index (CPI) increased to 0.9% quarter-over-quarter in the first quarter of 2025, largely driven by food and energy prices. Year-end growth remained stable at 2.4% year-over-year (YoY). The trimmed mean CPI increased 2.9% YoY, marking the first time since the fourth quarter of 2021 that the figure fell within the 2-3% target band of the Reserve Bank of Australia (RBA).

Australia's private-sector credit growth remained stable at 0.5% month-over-month (MoM) in March, with business credit growth decelerating materially to 0.3% MoM—the slowest monthly pace in over a year. Nominal retail sales rose 0.3% MoM in March as expected. The details were softer, with ex-food sales broadly flat for a second consecutive month.

According to Statistics Canada, Canada's economy contracted 0.2% in February and grew 0.1% in March, with annualised growth of 1.5% in the first quarter, slower than expected. The weak economic growth is expected to continue, with a quarterly contraction in the second quarter and flat growth in the next. The Bank of Canada paused its easing campaign this month, and its next rate decision is on 4 June, with traders putting the odds of a rate cut at around a coin flip.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 3.0% (1.0% in April, 1.6% YTD).

The US S&P 500 Index was up 2.9% for the week (-0.7% in April, -2.9% YTD), logging its second consecutive week of gains for the first time since January and closing Friday with its ninth straight session in positive territory. Growth shares outperformed value stocks, and small caps outperformed large caps. The Russell 1000 Growth Index returned 3.4% (1.9% in April, -5.9% YTD), the Russell 1000 Value Index 2.5% (-3.0% in April, 0.5% YTD), and the Russell 2000 Index 3.2% (-2.3% in April, -9.0% YTD), advancing for the fourth week in a row. The technology-heavy Nasdaq Composite jumped 3.4% (0.9% in April, -6.7% YTD), supported by better-than-expected earnings reports from several large-cap tech companies.

In Europe, the MSCI Europe ex UK Index ended the week 3.4% higher (-0.3% in April, 7.9% YTD) as tariff concerns eased. Major stock indexes gained. Germany’s DAX Index surged 3.8% (1.5% in April, 16.0% YTD), France’s CAC 40 Index rallied 3.1% (-2.0% in April, 6.1% YTD), and Italy’s FTSE MIB Index climbed 2.6% (-0.3% in April, 13.6% YTD). Switzerland’s SMI Index rose 2.6% (-2.5% in April, 8.6% YTD). The euro weakened against the US dollar, closing the week at USD 1.13 for EUR, down from 1.14.

The FTSE 100 Index in the UK added 2.2% (-0.7% in April, 6.7% YTD), and the FTSE 250 Index rallied 3.3% (2.7% in April, -0.6% YTD). The British pound was stable against the US dollar, closing the week at USD 1.33 for GBP.

Japan’s stock markets gained over the week. The TOPIX Index jumped 2.3% (0.3% in April, -2.9% YTD), and the TOPIX Small Index increased 0.4% (0.3% in April, -1.1% YTD).

In Australia, the S&P/ASX 200 Index surged 3.4% (3.6% in April, 2.5% YTD) on resilient corporate earnings, mild March CPI and the headline news of China evaluating possible US trade talks. Australian government bond yields stayed largely unchanged. The Australian dollar strengthened against the US dollar by 0.6%.

In Canada, the S&P/TSX Composite put on 1.4% (-0.1% in April, 2.2% YTD).

The MSCI Emerging Markets Index was 3.4% higher (1.3% in April, 6.3% YTD), with the stock markets of Taiwan, India, South Korea and Brazil contributing positively to performance, and that of China contributing negatively.

Mainland Chinese stock markets declined in a holiday-shortened week. The onshore CSI 300 Index shed -0.4% (-2.9% in April, -3.8% YTD), and the Shanghai Composite Index retreated -0.5% (-1.6% in April, -1.8% YTD). Markets in mainland China are closed from 1 May until 5 May for the Labour Day holiday and will resume trading on Tuesday, 6 May. Hong Kong's benchmark Hang Seng Index rallied 2.6% (-4.0% in April, 13.4% YTD). MSCI China Index tacked on 2.4% (-4.6% in April, 12.3% YTD).

In Hungary, the National Bank of Hungary (NBH) held its regularly scheduled policy meeting and kept its main policy rate, the base rate, at 6.50%. The NBH also held the overnight collateralised lending rate—the upper limit of an interest rate “corridor” for the base rate—at 7.50%. In addition, the central bank left the overnight deposit rate, which is the lower limit of that corridor, unchanged at 5.50%. The decision to leave rates unchanged was generally expected.

According to the central bank’s post-meeting statement, policymakers identified “intensifying trade policy tensions” and “prolonged geopolitical conflicts” as major contributors to a “generally uncertain global economic environment.” They noted that US recession risks have increased, but believe that EU “expenditure hikes may dampen the restraining effects of slowing international trade on economic growth.”

Regarding the Hungarian economy, central bank officials expect consumption to increase in 2025 amid rising real wages and tax cuts and economic growth to pick up as “large capacity-enhancing industrial investment projects start production.” However, they caution that higher global tariffs could lead to “subdued export performance” while “rising uncertainty could result in the postponement of certain investment projects” that would weigh on the economy.

As for inflation, policymakers noted that headline inflation was 4.7% and core inflation was 5.7% in March, with price expectations among consumers and businesses “at high levels.” Although they expect inflation to fall further in April—helped by a decrease in global oil prices—they believe that inflation risks have increased “due to the different timing and opposite direction of the effects of tariff announcements,” as well as possible “risk aversion toward Hungarian assets,” such as the forint currency. As a result, policymakers decided to maintain a restrictive monetary policy and leave short-term interest rates at current levels.

In Chile, Chilean central bank officials also held a policy meeting and decided to keep the monetary policy interest rate at 5%, the same as it has been since December 2024. The decision was unanimous among policymakers.

According to the post-meeting statement, policymakers observed that uncertainty about the global outlook “has increased considerably” on the heels of the US tariff announcements in early April. They also noted that both tariffs and “geopolitical conflicts” are “perceived to have negative effects on growth.”

While they acknowledged that global financial market volatility has affected Chilean markets, they also noted that “local financial conditions have improved” since the beginning of April, as indicated by lower short- and long-term interest rates, peso appreciation, and rising stock prices. In fact, policymakers point to recent data as an indication of “greater dynamism” in the economy, “largely due to the performance of export-related supply sectors, accompanied by a gradual recovery of domestic demand.”

While 4.9% year-over-year headline inflation in March was in line with expectations, and 3.7% annual core inflation was lower than anticipated, policymakers left interest rates unchanged. They determined that caution was warranted because they expect inflation to remain “at high levels in the immediate future.” They noted that global growth prospects have “deteriorated” due to changes in “global trade policy” and that their ultimate impacts on the Chilean economy “are still uncertain.”

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.1% (1.0% in April, 1.7% YTD), the Bloomberg Global High Yield Index (hedged to USD) was flat (flat in April, 1.3% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index returned -0.2% (0.8% in April, 3.0% YTD).

US Treasuries fluctuated throughout the week in response to the slew of economic data releases. Yields across most maturities were generally lower through Thursday, though most increased on Friday following the better-than-expected jobs report. Over the week, the 10-year Treasury yield rose 7bps, ending at 4.31% from 4.24% (down -26bps YTD). The 2-year Treasury yield rose 8bps, ending the week at 3.83% from 3.75% (down -42bps YTD).

US investment-grade corporate bonds underperformed after rallying in the prior week. The high yield bond market received technical support from positive flows and light issuance, although the energy sector came under pressure after Saudi Arabia signalled it may increase oil production.

Over the week, the 10-year German bund yield increased 6bps, ending at 2.53% from 2.47% (up 17bps YTD). The 10-year UK gilt yield increased 3bps, ending the week at 4.51% from 4.48% (down -6bps YTD).