Weekly Market Recap

Official data showed that retail sales volumes in the UK unexpectedly rose in March by a seasonally adjusted 0.4%, compared with a downwardly revised 0.7% in February. Economists polled by Bloomberg had projected a decline of 0.4%. However, rising energy bills and volatile financial markets depressed consumer confidence in April, according to research firm GfK. Separately, the IMF reduced its estimate for UK economic growth in 2025 to 1.1% from 1.6%.

US equities advanced during the week, supported by several reports indicating that the ongoing trade tensions between the US and China could be de-escalating. Speculation around near-term agreements with several other trading partners also appeared to be a tailwind, as were comments from President Donald Trump that appeared to walk back his recent threat to fire Federal Reserve Chair Jerome Powell.

In economic news, S&P Global reported its April flash Purchasing Managers’ Index (PMI) survey data, indicating that US business activity growth slowed to the lowest level in 16 months. While activity in the manufacturing space unexpectedly increased, from 50.2 in March to 50.7 in April, services activity growth slowed sharply, dragging the overall index down to 51.2 from 53.5 in the prior month (readings above 50 indicate expansion, while readings below 50 signal contraction).

Prices charged for goods and services increased at the fastest rate in over a year, with much of the increase attributed to the impact of tariffs. Expectations for the year fell to the lowest level since July 2022. However, the decline in optimism was less pronounced in the manufacturing sector amid “hopes of positive impacts from government policies.”

Meanwhile, the Census Bureau reported that durable goods orders increased for the third consecutive month in March, rising 9.2% from February. However, the advance was mostly attributed to a sharp rise in transportation equipment orders (27%), specifically for commercial aircraft (139%), as businesses attempted to get ahead of impending tariffs. Excluding the transportation category, orders were flat month over month, potentially reflecting some apprehension among businesses amid ongoing economic and policy uncertainty.

On Thursday, the National Association of Realtors (NAR) reported that sales of previously owned US homes dropped 5.9% in March, the steepest monthly drop since November 2022. The 4.02 million seasonally adjusted home sales during the month were also the lowest for March since 2009. According to Lawrence Yun, NAR Chief Economist, “home buying and selling remained sluggish in March due to the affordability challenges associated with high mortgage rates.” However, Yun also noted that “with mortgage delinquencies at near-historical lows, the housing market is on solid footing.”

Elsewhere, the University of Michigan reported that its final Index of Consumer Sentiment reading for April was 52.2, higher than a previous estimate but still 8% lower than March. Surveys of Consumers Director Joanne Hsu noted that “expectations have fallen a precipitous 32% since January, the steepest three-month percentage decline seen since the 1990 recession,” with consumers citing “ongoing uncertainty around trade policy and the potential for a resurgence of inflation.” Expectations for inflation in the year ahead surged to 6.5%, up from 5% in March and the highest reading since 1981.

European Central Bank (ECB) Chief Economist Philip Lane told Bloomberg News that tariff uncertainty would curb economic growth, but a recession was unlikely given the bloc’s diversified trading relationships. ECB President Christine Lagarde said in an interview with The Washington Post that she could not exclude the possibility that the central bank would revisit its growth forecasts in June when policymakers next meet.

In light of US trade tariffs introduced at the beginning of April, the German government cut its gross domestic product (GDP) forecast for this year. It now expects stagnation, rather than the 0.3% expansion it projected in January. Meanwhile, Bundesbank President Joachim Nagel said at the International Monetary Fund (IMF) meeting in Washington that trade tensions would have a “significant” impact on the country’s export-led economy, which might even tip into a “slight recession.” Germany’s GDP has shrunk for the past two years.

According to PMIs compiled by S&P Global, a faster reduction in new orders and waning confidence held back business activity in the eurozone in April.

The composite PMI, which combines services and manufacturing output, registered a preliminary reading of 50.1 in April, down from 50.9 in March. Services sector activity weakened marginally, but manufacturing shook off the US tariff threat, expanding for a second consecutive month.

On Friday, China’s Politburo—the ruling Communist Party’s 24-member executive policymaking body—said it would “fully prepare” emergency plans in response to external shocks. The group also said that China would set up new monetary tools and policy financing instruments to boost technology, consumption, and trade, Bloomberg reported, citing state media. Officials also pledged to go “all out to consolidate the fundamentals of economic development and social stability.”

The readout from the Politburo, which Chinese President Xi Jinping leads, indicated that Beijing was taking a patient approach toward supporting the economy amid the US trade war. Most analysts see the impact of US levies on China becoming evident in the near term after the Trump administration hiked total tariffs on most Chinese goods to 145% earlier in April. However, China’s better-than-expected growth in the first quarter and stimulus measures that the central government outlined in early March have afforded Beijing more time to unleash economic aid.

Though China has been careful about overdoing stimulus and reflating credit in recent years, T. Rowe Price sovereign analyst Chris Kushlis believes it could provide fiscal stimulus in stages this year as it assesses the economic costs of tariffs. While a trade war with the US would likely shock Chinese exports and economic confidence, Kushlis noted that the central government should have the financial capacity to reduce its impact.

A hot inflation print continued to support the case for further rate hikes by the Bank of Japan (BoJ). However, uncertainty about the economic impacts of US tariff measures complicates the central bank's monetary policy normalisation process. Tokyo-area inflation, regarded as a leading indicator of nationwide trends, quickened at the fastest pace in two years, with the core consumer price index (CPI) rising 3.4% year on year in April, ahead of market expectations of a 3.2% increase and up from 2.4% in March. The acceleration was attributed to food price hikes and reduced government subsidies to curb electricity and gas bills. BoJ Governor Kazuo Ueda reiterated the bank’s stance that it will raise rates if underlying inflation converges toward its 2% target. Given uncertainty about US tariff impacts, it will continue to scrutinise whether the economy moves in line with its forecasts.

With bilateral trade discussions between Japan and the US ongoing, Japan’s government announced a package of emergency economic relief measures—including support for corporate financing and steps to stimulate consumption—to ease the impact of the higher US tariffs on Japan’s economy. While pushing for the US to review its trade policy, Japan has, to date, not received exemptions under the current tariff regime. Prime Minister Shigeru Ishiba highlighted that the levies could substantially hurt domestic industries such as automobiles and steel.

Australia's political polls and prediction markets have shifted dramatically following the “Liberation Day” tariffs announcement. The incumbent Australian Labour Party (ALP) is now favoured with an 80% chance to retain power at the upcoming federal election on 3 May, up from 40% a month ago. A minority government still looks to be the most likely scenario. That said, prediction markets and polls can be wrong, as occurred in the 2019 election, and both parties have announced a slew of policies aimed at swinging voters over recent weeks.

Prime Minister Mark Carney's Liberal Party holds a slim lead in opinion surveys, with 43% support among decided voters, ahead of Pierre Poilievre's Conservative Party, which has 39% support. Voting day is 28 April, but 7.3 million Canadians have already cast their ballots at advance polls.

Carney says Canada does not need to reach a quick deal with President Trump, arguing Canada has enough leverage to wait longer if necessary. Carney plans to focus on domestic economic issues, such as lowering internal trade barriers and developing resource projects, to boost the economy and gain leverage in negotiations with Trump. Former Canadian trade negotiator Steve Verheul expects Canada and the US to eventually reach a deal, citing Canada's importance as an oil supplier to the US and the potential for the US to seek allies in North America.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 4.0% (-1.3% YTD).

The US S&P 500 Index posted a gain of 4.6% for the week (-5.7% YTD). Some better-than-expected corporate earnings releases during the week also seemed to drive positive sentiment. According to data from FactSet, 73% of the companies that had reported first-quarter results through Friday morning had beaten consensus earnings expectations. Market activity levels and trading volumes were relatively light throughout the week, remaining below year-to-date averages.

Growth shares outperformed value stocks, and small caps underperformed large caps. The Russell 1000 Growth Index returned 6.8% (-8.9% YTD), the Russell 1000 Value Index 2.3% (-2.0% YTD), and the Russell 2000 Index 4.1% (-11.9% YTD), posting gains for the third consecutive week. The technology-heavy Nasdaq Composite jumped 6.7% (-9.8% YTD), leading returns for the major indexes in a sharp rebound from the prior week.

In Europe, the MSCI Europe ex UK Index ended the week 3.3% higher (4.3% YTD) after President Trump signalled that he is willing to reduce trade tensions with China and retracted his threats to fire Fed Chair Powell. Major stock indexes gained. Germany’s DAX Index jumped 4.9% (11.7% YTD), France’s CAC 40 Index rallied 4.0% (2.9% YTD), and Italy’s FTSE MIB Index surged 4.7% (10.7% YTD). Switzerland’s SMI Index soared 3.1% (5.8% YTD). The euro was little changed against the US dollar, closing the week at USD 1.14 for EUR.

The FTSE 100 Index in the UK added 1.8% (4.4% YTD), and the FTSE 250 Index gained 2.1% (-3.8% YTD). The British pound was stable against the US dollar, closing the week at USD 1.33 for GBP.

Japan’s stock markets rose over the week. The TOPIX Index rose 2.7% (-5.1% YTD), and the TOPIX Small Index added 1.3% (-1.5% YTD). Sentiment was supported by tentative signs of easing in global trade tensions. Amid softening demand for assets perceived as safer, the yen weakened to JPY 143.7 against the US dollar from 142.2 at the end of the prior week. The 10-year Japanese government bond (JGB) yield rose to 1.34% from 1.28% at the end of the previous week.

In Australia, the S&P/ASX 200 Index rose 1.9% (-0.9% YTD) in a holiday-shortened week as US Treasury Secretary Bessent indicated the tariff stand-off with China cannot be sustained and expected the tension to de-escalate. Australian government bond long-term yields moved modestly lower, with the curve flattening. The Australian dollar continued to strengthen against the US dollar by 0.4%.

In Canada, the S&P/TSX Composite put on 2.2% (0.8% YTD).

The MSCI Emerging Markets Index was 2.7% higher (2.8% YTD), with the stock markets of China, Taiwan, India, South Korea and Brazil contributing positively to performance.

Mainland Chinese stock markets advanced for the week amid expectations that the government will roll out more stimulus to cushion China’s economy from the impact of US tariffs. The onshore CSI 300 Index increased 0.5% (-3.4% YTD), and the Shanghai Composite Index added 0.6% (-1.3% YTD). Hong Kong's benchmark Hang Seng Index rallied 2.8% (10.5% YTD). MSCI China Index climbed 3.4% (9.6% YTD).

Regarding India and Pakistan, a terrorist attack in the India-controlled portion of the Kashmir region claimed the lives of 26 tourists. In the aftermath of the attack, India declared that the Indus Waters Treaty, which governs the distribution of Indus River water between India and Pakistan, is held in “abeyance.” This gives India more options on how to use the Indus waters. It can choose to stop sharing water flow data with Pakistan, and it can create more dams and lakes to divert the water to other parts of the country. Importantly, it is not about shutting down the water supply in any way. Other responses from the Indian government, which are along standard diplomatic lines, as opposed to a direct military response, include expelling certain Pakistani personnel, cancelling visa schemes, and shutting down one border post. Pakistan responded with its measures, including the expulsion of some Indian diplomats and the closure of Pakistani airspace to Indian aircraft.

T. Rowe Price credit analyst Shaoyu Guo does not believe it is in either country’s interest to escalate the situation at this juncture. Pakistan is focusing on implementing fiscal austerity under an IMF programme in the coming years, and India is currently busy with US trade negotiations. For now, Guo believes India and Pakistan are acting in a well-choreographed manner, with de-escalation as the preferred course of action.

In Türkiye, central bank Governor Fatih Karahan and Finance Minister Mehmet Simsek travelled to the US this week to attend the World Bank and IMF annual meetings. On Wednesday, they met with US Treasury Secretary Scott Bessent to discuss Türkiye’s economic situation and efforts to increase bilateral cooperation, particularly regarding regional matters in the Middle East.

During the visit to the US, Simsek gave a presentation on Türkiye’s monetary policy and inflation outlook. He characterised monetary policy as being “proactive” and claimed that policy transmission has improved “considerably” over the last year, thanks in part to “active liquidity management.” While the disinflation process is continuing—with declining services inflation becoming “more evident”—and while the pass-through of inflation from currency exchange fluctuations has been “modest,” Simsek acknowledged that risks remain “alive” due in part to uncertainty about global economies, capital flows, and commodity prices.

He concluded his presentation with a reiteration of policymakers’ beliefs as expressed in recent central bank post-meeting statements. For example, he indicated that the “decisiveness” regarding a tight monetary stance “is strengthening the disinflation process through moderation in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations.” Simsek also affirmed policymakers’ intention to maintain a tight monetary stance “until price stability is achieved via a sustained decline in inflation.” In addition, he asserted that central bank officials will tighten monetary policy if they foresee “a significant and persistent deterioration in inflation.”

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (1.8% YTD), the Bloomberg Global High Yield Index (hedged to USD) 1.3% (1.3% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 1.1% (3.2% YTD).

US government bonds generated modest gains as yields across most maturities, particularly longer-term yields, decreased amid rising expectations of an economic slowdown. Over the week, the 10-year Treasury yield declined -9bps, ending at 4.24% from 4.33% (down -34bps YTD). The 2-year Treasury yield decreased -5bps, ending the week at 3.75% from 3.80% (down -49bps YTD).

Meanwhile, US investment-grade corporate bonds outperformed Treasuries, while issuance in the investment-grade corporate market was in line with expectations and generally oversubscribed as investors sought higher-quality bonds.

Over the week, the 10-year German bund yield was broadly stable, ending at 2.47% (up 10bps YTD). The 10-year UK gilt yield decreased -8bps, ending the week at 4.48% from 4.56% (down -9bps YTD).