Weekly Market Recap

The Bank of England held interest rates at 4.5%, as expected. Only one of the nine rate-setters voted for a reduction, which was seen as a hawkish signal by the market, which had anticipated a 7–2 split. Policymakers expressed concerns over high inflation expectations.

The highlight of last week’s economic calendar came on Wednesday as the Federal Reserve concluded its March monetary policy meeting. As was widely expected, the central bank held its policy rate steady at 4.25%–4.5%. Fed officials also indicated that they expect 50 basis points (bps) of rate cuts this year, unchanged from a previous projection in December. Notably, however, policymakers increased their expectations for inflation in 2025 while lowering their expectations for gross domestic product (GDP) growth. The Fed’s post-meeting statement also noted that “uncertainty around the economic outlook has increased.”

Nevertheless, the takeaways from the meeting seemed largely positive, with Fed Chair Jerome Powell stating that the Fed’s “base case” is that the impact of tariffs will be transitory and that “most measures of longer-term expectations remain consistent with” the central bank’s 2% inflation target. Investors appeared to welcome the generally dovish tone following the meeting, with most stock indexes posting solid gains for the day.

Other economic data releases during the week seemed to provide a somewhat mixed outlook. On Monday, the Census Bureau reported that retail sales in February rose 0.2%, well below consensus estimates for a 0.7% increase. January’s reading was also revised down to -1.2%, marking the steepest decline since July 2021. On the other hand, control group sales—which feed directly into the GDP calculation and exclude several volatile categories, including automobiles and restaurants—rose 1% during the month, exceeding estimates for a 0.4% gain.

Monday also brought data from the Empire State Manufacturing Survey—a survey of manufacturers in New York that measures general business conditions—which indicated that “business activity dropped significantly” in March, while “optimism about the outlook waned considerably for a second consecutive month.”

Elsewhere, several housing market-related data releases provided a more optimistic outlook, highlighted by a better-than-expected 4.2% increase in existing home sales in February, driven by an increase in supply. February housing starts also surprised to the upside with an adjusted annual rate of 1.5 million starts during the month, up 11.2% from January. However, the reading represented a -2.9% decline year over year (YoY).

The latest monetary policy statements highlighted trade-related uncertainty, with central bankers attempting to balance the headwinds to growth against the risk of faster inflation. Several policy announcements emphasised the cloudier economic outlook, with some central banks adopting a wait-and-see approach.

Sweden’s Riksbank kept its benchmark rate at 2.25% after recent data showed that inflation remained above target. Governor Erik Thedéen indicated that rates were likely to remain unchanged through early 2028 but also said the bank was ready to act if necessary.

The Swiss National Bank (SNB), however, cut its policy interest rate by 25bps to 0.25%, citing low inflationary pressure and increased downside risks. SNB President Martin Schlegel indicated further rate cuts are unlikely.

Speaking at the European Parliament, European Central Bank (ECB) President Christine Lagarde said the ECB would remain vigilant because of the uncertainties stemming from rising trade tensions. She also said that a proposed US tariff of 25% on European imports would reduce eurozone economic growth by 0.3% in the first year, with the impact on GDP increasing to approximately 0.5% if Europe were to respond in a similar manner. She added that inflation could pick up by about 0.5% due to retaliatory measures and a weaker euro.

Tomasz Wieladek, T. Rowe Price Chief European Economist, expects the ECB to reduce the deposit rate by 25bps twice more this year, probably at the early April meeting and in June. He says there is a risk that the ECB could lower interest rates in the short term if a trade war erupts between the EU and the US.

China released a batch of better-than-expected indicators showing that the economy started the year on solid footing. Retail sales rose 4.0% in the January-February period from a year earlier, marking the quickest growth rate since November. Industrial output grew 5.9% YoY in the first two months of the year, slowing from December’s 6.2% expansion but still surpassing forecasts. Fixed asset investment—which includes property and infrastructure investment—increased 4.1% in the January-February period YoY, above expectations and December’s 3.2% pace. China’s statistics bureau combines data for January and February to smooth out distortions caused by the irregular timing of the Chinese New Year holiday.

Other data signalled areas of weakness in the economy, however. Property development investment sank -9.8% in the first two months of 2025 YoY, after falling -10.6% in December, according to the statistics bureau, indicating that China’s years-long property slump has yet to bottom. The urban unemployment rate rose to 5.4%, the highest level in two years, according to Reuters.

Several brokerages upgraded their GDP forecasts for China following the data release, reflecting confidence that Beijing can meet its annual growth goals despite the risk of an escalating US trade war. At the National People’s Congress meeting earlier in March, China pledged stronger fiscal and monetary support for the economy and stated that boosting consumption was the government’s top priority for 2025. It also set an economic growth target of about 5% for the third straight year.

At its monetary policy meeting on 18–19 March, the Bank of Japan (BoJ) kept its short-term policy rate unchanged at 0.5%, as expected. The BoJ’s economic and price outlook remained broadly unchanged, with the central bank maintaining its view that monetary policy will be tightened if the price outlook develops in line with its forecast. BoJ Governor Kazuo Ueda also expressed concerns about trade policies as a risk to the outlook. Investors continued to anticipate that the pace of rate hikes by the BoJ would be gradual.

Data appeared to reinforce the case for further interest rate increases. Japan’s core consumer price index rose 3.0% YoY in February, ahead of the consensus for 2.9% but slowing from January’s 3.2%. The first takeaways from Japan’s spring “shunto” labour-management wage negotiations indicated a steady trend of wage growth.

The BoJ is watching for an intensification of a virtuous cycle between wages and prices, which would boost inflation expectations. In its statement on monetary policy, the BoJ cited two factors that are likely to exert upward pressure on consumer inflation through fiscal 2025: rice prices are expected to remain at high levels, and the effects of the government’s measures aimed at lowering inflation will dissipate.

Australia's employment declined by 52,800 in February, which is significantly weaker than the expected increase of 30,000. The fewer older workers returning to work in February contributed to the broad decline in both full-time and part-time employment. As a result, the participation rate fell 40bps to 66.8%, while the unemployment rate remained stable at 4.1%, in line with consensus. Net overseas arrivals, a proxy for immigration, continued to ease in February.

Canadian Prime Minister Mark Carney is expected to call a national election within days, seeking a mandate from voters amidst a trade war with the US. Carney, a former central bank governor, is riding a wave of early support in public opinion polls, with some surveys giving the Liberal Party a slight lead. The trade war has shaken confidence in Canada's private sector, with optimism among small- and medium-sized firms falling to a record low and party leaders pledging to diversify exports and green-light significant projects.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.7% (0.4% YTD).

The US S&P 500 Index posted a gain of 0.5% (-3.3% YTD) for the week, with most indexes snapping a multi-week decline. Growth stocks underperformed value shares for the fifth consecutive week, and large caps lagged behind small caps. The Russell 1000 Growth Index returned 0.3% (-7.7% YTD), the Russell 1000 Value Index 1.0% (1.6% YTD), and the Russell 2000 Index 0.6% (-7.5% YTD). Large-cap tech stocks generally underperformed, weighing on the technology-heavy Nasdaq Composite, which put on 0.2% (-7.8% YTD). Trading volumes throughout most of the week were relatively light, including the lightest daily volumes this year on Thursday, as investors continued to digest changes related to new policies, economic growth forecasts, and geopolitical risks.

In Europe, the MSCI Europe ex UK Index ended the week 0.6% higher (9.8% YTD). Hopes of a boost in government spending fuelled the gains, but tensions about US tariffs planned for early April acted as a curb. Major stock indexes were mixed. Germany’s DAX Index gave back -0.4% (15.0% YTD), France’s CAC 40 Index eked out a modest gain of 0.2% (9.1% YTD), and Italy’s FTSE MIB Index advanced 1.0% (14.6% YTD). Switzerland’s SMI Index rose 1.2% (13.4% YTD). The euro depreciated versus the US dollar, ending the week at USD 1.08 for EUR, down from 1.09.

The FTSE 100 Index in the UK added 0.2% (6.7% YTD), and the FTSE 250 Index slid -0.4% (-3.0% YTD). The British pound changed slightly compared to the US dollar, ending the week at USD 1.29 for GBP.Japan’s stock markets rose over the week. The TOPIX Index jumped 3.3% (0.1% YTD), and the TOPIX Small Index rallied 2.2% (1.8% YTD). Foreign investor interest helped lift the shares of Japanese trading companies. The BoJ adopted a cautious stance, holding rates steady as it assesses the potential impact of higher US tariffs on Japan’s economy. The yen weakened to JPY 149.3 against the US dollar from 148.6 at the end of the prior week. The yield on the 10-year Japanese government bond increased to 1.52% from 1.51% the previous week.

In Australia, the S&P/ASX 200 Index increased by 1.8% (-1.4% YTD) following the release of the Fed minutes, which took a dovish tone, boosting investor confidence. Australian government bond yields moved marginally lower, and the Australian dollar weakened against the US dollar by -0.5%.

In Canada, the S&P/TSX Composite gained 1.8% (1.6% YTD).

The MSCI Emerging Markets Index was 1.2% higher (5.7% YTD), with the stock markets of Taiwan, India, South Korea, and Brazil contributing positively to the performance, while that of China contributed negatively.

Mainland Chinese stock markets declined as investors became cautious following two weeks of gains. The onshore CSI 300 Index dropped -2.3% (-0.3% YTD), and the Shanghai Composite Index fell -1.6% (0.7% YTD). Hong Kong's benchmark Hang Seng Index lost -1.1% (19.0% YTD). MSCI China Index shed -1.7% (18.1% YTD).

In Türkiye, Turkish stocks and the lira tumbled after authorities detained Istanbul Mayor Ekrem İmamoğlu on allegations of corruption and aiding a terrorist organisation. The news sparked concerns about the country's political environment and the rule of law. İmamoğlu had defeated candidates from President Recep Tayyip Erdoğan’s party in the 2019 and 2024 mayoral elections and was set to represent the opposition party in the next presidential race, which is slated to take place by 2028. The day before İmamoğlu’s detention, news broke that his college degree—a prerequisite for running for president—had been revoked due to questions about his transfer from another institution to the university.

In Brazil, as expected, the central bank lifted its benchmark interest rate by a whole percentage point to 14.25%, the highest level since October 2016. All told the central bank has tightened monetary policy by 375bps over its past five meetings. The accompanying statement highlighted the potential for an additional rate increase at the central bank’s next meeting, albeit smaller than the most recent hike. Policymakers indicated that the magnitude and duration of the tightening cycle would hinge on inflation and economic data while highlighting US trade and monetary policy as sources of uncertainty.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (0.9% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.3% (1.6% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.2% (2.7% YTD).

US Treasuries generated positive returns as yields across most maturities declined following the Fed’s policy meeting. Over the week, the 10-year Treasury yield decreased -6bps to 4.25% from 4.31% (down -32bps YTD). The 2-year Treasury yield declined -7bps, ending the week at 3.95% from 4.02% (down -29bps YTD).

US investment-grade bond spreads tightened, and new issuance in the market generally aligned with expectations. High yield bond market volumes were muted early in the week, but the asset class gained momentum alongside equities following the Fed meeting.

Over the week, the 10-year German bund yield decreased -11bps, ending at 2.76% from 2.87% (up 40bps YTD). The 10-year UK gilt yield rose 5bps, ending the week at 4.71% from 4.66% (up 15bps YTD).