Weekly Market Recap

Headline inflation in the UK slowed to 2.6% in March from 2.8% in February as the prices of gasoline, games, toys, and hobbies eased. The annual increase in consumer prices was below the 2.7% consensus forecast of economists in a FactSet poll. Furthermore, services inflation, which is closely monitored by policymakers, also decelerated faster than anticipated, to 4.7% from 5%.

Meanwhile, official data indicated that the labour market weakened but that wage growth remained strong. The official unemployment rate held at 4.4%. Data collected from employers by the tax authorities showed that the number of employees declined by 78,000 in March, the most since 2020. Still, weekly average earnings, excluding bonuses, grew 5.9% in the three months through February compared with the same period a year earlier, up from 5.8% in the previous three-month period.

Comments from Federal Reserve Chair Jerome Powell appeared to add to the negative sentiment in the latter half of last week. Speaking at the Economic Club of Chicago, Powell echoed recent comments from Fed officials regarding their economic outlook, stating that tariff increases have been “significantly larger than anticipated,” and that “the same is likely to be true of the economic effects, which will include higher inflation and slower growth.” Powell also reiterated that policymakers are “well positioned to wait for greater clarity before considering any adjustments” to monetary policy, which some interpreted as ruling out any interest rate cuts in the near term.

The week’s economic data releases included several reports related to the housing market, starting with the National Association of Home Builders (NAHB) Housing Market Index. On Wednesday, the NAHB reported that the index—which gauges the overall sentiment of homebuilders—was 40 in April, inching up one point from March but remaining under the threshold of 50, indicating that a majority of homebuilders have a negative outlook on the market. According to NAHB Chief Economist Robert Dietz, “policy uncertainty is having a negative impact on homebuilders, making it difficult for them to accurately price homes and make critical business decisions.”

This uncertainty appeared to be reflected in Thursday’s housing starts data, which indicated that construction of new homes decreased by over -11% in March to an annualised rate of 1.32 million, falling short of consensus estimates for 1.42 million. Meanwhile, in a press release accompanying its earnings report during the week, homebuilder D.R. Horton noted that “the 2025 spring selling season started slower than expected as potential homebuyers have been more cautious due to continued affordability constraints and declining consumer confidence.” The company also reduced its guidance for revenue and closings in 2025.

Elsewhere, the Census Bureau reported that retail sales rose 1.4% in March, the highest monthly increase over two years. The advance was broad-based, with 11 of the report’s 13 categories increasing from February. Sales at motor vehicle and parts dealers surged 5.3%, indicating consumers were rushing to buy cars ahead of the Trump administration’s 25% tariff on automobiles. Building materials, sporting goods, and electronics also had notable increases in sales during the month.

As expected, the European Central Bank (ECB) cut its key deposit rate by another quarter of a percentage point to 2.25%. The central bank dropped the language “policy is becoming meaningfully less restrictive” from its statement. The ECB reiterated that it would follow a data-dependent, meeting-by-meeting approach and not pre-commit to a particular rate path. While the ECB viewed the disinflation process as being on track, it warned that the growth outlook has deteriorated due to trade policy uncertainty.

T. Rowe Price Chief European Economist Tomasz Wieladek says that the ECB clearly sent a strong signal that it wants to lower borrowing costs meaningfully below the neutral rate and by more than financial markets expect. The central bank’s policy statement is consistent with his view that the ECB will likely cut the deposit rate to 1.5% or below.

On Wednesday, China’s statistics bureau said that the country’s gross domestic product (GDP) expanded by 5.4% in the first quarter compared to a year earlier. According to analysts, the better-than-expected increase gave little comfort for policymakers, as it reflected growth before higher US tariffs kicked in earlier this month and was driven by front-loaded shipments from buyers seeking to get ahead of the tariff hikes. The impact of the US levies on China will likely become apparent in the coming months following the Trump administration’s decision to raise total tariffs on most Chinese goods to 145%.

Recently, many global banks have ratcheted down their 2025 growth forecasts for China over doubts that Beijing can meet its official GDP target of around 5% growth. However, the US-sparked trade war has fuelled expectations that China will deploy further stimulus measures in the near term. A meeting by the ruling Communist Party’s Politburo at the end of April will likely offer more insight into officials’ thinking regarding the size and timing of any economic stimulus, Bloomberg reported. Regardless of the magnitude of headline tariff increases, T. Rowe Price economists think that China has the financial capacity to offset their impact through more fiscal stimulus.

The latest comments by the Bank of Japan (BoJ) were interpreted by some investors as cautious and that, given uncertainties from factors such as tariff impacts, the central bank could delay the timing of its next interest rate hike. BoJ Governor Kazuo Ueda said that policy support may be warranted, and policy would be conducted appropriately in response to changing conditions. The BoJ’s stance remains that it will raise interest rates if its forecasts for the economy and prices are realised. The 10-year Japanese government bond (JGB) yield declined to 1.28% from 1.40% at the end of the previous week.

Demand for assets perceived as safer was high amid signs of an escalating trade war between the US and China. The yen strengthened to JPY 142.2 against the US dollar from 143.5 at the end of the prior week. Despite investors’ focus on the currency markets and the weakness of the yen, the topic of foreign exchange has not yet been included in the bilateral trade talks between the US and Japan.

On the economic data front, Japan’s exports grew 3.9% year on year in March, less than consensus expectations of 4.5% and slowing sharply from February’s 11.4% increase. This was due to the influence of US steel and aluminium tariffs and weakness in European and Chinese demand. Imports rose 2.0% year on year in March, short of consensus estimates of 3.1% but returning to positive growth following February’s -0.7% decline.

The March meeting minutes of the Reserve Bank of Australia, which predated the US reciprocal tariff announcement, noted the Board paused the easing cycle because it “judged that it was not appropriate at this stage for monetary policy to react to the potential risks that could move outcomes in either direction.” That said, the minutes signalled an evident willingness to act at the next Board meeting, noting “the May meeting would be an opportune time to revisit the monetary policy setting with the benefit of additional data about inflation, wages, the labour market and trends in economic activity, along with a fresh set of economic forecasts and further information about the likely evolution of global trade policies.”

Australian employment increased by 32,200 in March, below the market consensus of 40,000. The expectation for a reversal of the surprise fall in February did not happen. The unemployment rate printed 10bps below expectations at 4.1% with the participation rate edging 10bps higher to 66.8%.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.4% (-5.1% YTD).

The US S&P 500 Index posted a loss of -1.5% for the week (-9.8% YTD). Major stock indexes finished the holiday-shortened week mixed (markets were closed Friday in observance of the Good Friday holiday). The information technology sector showed a notable decline during the week due partly to news that the US government would add new restrictions on the export of chips to China, which would further escalate the ongoing trade war between the world’s two largest economies. The news sent shares of NVIDIA, Advanced Micro Devices, and other companies with artificial intelligence exposure lower on Wednesday, weighing on the broader sector.

Growth shares underperformed value stocks, and small caps outperformed large caps. The Russell 1000 Growth Index returned -2.5% (-14.7% YTD), the Russell 1000 Value Index 0.1% (-4.2% YTD), and the Russell 2000 Index 1.1% (-15.4% YTD). The technology-heavy Nasdaq Composite dropped -2.6% (-15.5% YTD).

In Europe, the MSCI Europe ex UK Index ended the week 3.7% higher (1.0% YTD) over the seven days ended 17 April, clawing back some of April’s sharp losses. President Trump’s decision to delay imposing higher tariffs and the ECB’s signal that more interest rate cuts were likely bolstered investor sentiment. Major stock indexes gained. Germany’s DAX Index jumped 4.1% (6.5% YTD), France’s CAC 40 Index rallied 2.5% (-1.1% YTD), and Italy’s FTSE MIB Index jumped 5.7% (5.7% YTD). Switzerland’s SMI Index soared 4.1% (2.6% 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 jumped 4.0% (2.6% YTD), and the FTSE 250 Index gained 4.0% (-5.8% YTD). The British pound appreciated against the US dollar, closing the week at USD 1.33 for GBP, up from 1.31.

Japan’s stock markets gained in the week ended Thursday. The TOPIX Index rose 3.7% (-7.6% YTD), and the TOPIX Small Index added 4.1% (-2.8% YTD). Sentiment toward the end of the period was boosted by tentative signs of progress in ongoing bilateral trade negotiations between the US and Japan, where Japan is requesting that the tariffs imposed on its imports into the US be reviewed and is pushing for more favourable trade terms.

In Australia, the S&P/ASX 200 Index rose 2.3% (-2.7% YTD) due to a US tariff exception for various electronics and the stable Australian unemployment rate in March. Longer-term Australian government bond yields moved lower with the curve flattening. The Australian dollar remained largely unchanged versus the US dollar.

In Canada, the S&P/TSX Composite put on 2.6% (-1.3% YTD).

The MSCI Emerging Markets Index was 2.3% higher (0.1% YTD), with the stock markets of China, India, South Korea and Brazil contributing positively to performance, and that of Taiwan contributing negatively to performance.

Mainland Chinese stock markets advanced for the week ended Thursday amid expectations that Beijing will ramp up stimulus to blunt the impact of higher US tariffs. The onshore CSI 300 Index increased 0.6% (-3.9% YTD), and the Shanghai Composite Index added 1.2% (-1.9% YTD). Hong Kong's benchmark Hang Seng Index gained 2.3% (7.5% YTD). MSCI China Index rose 1.6% (6.0% YTD).

Regarding Hungary, credit rating agency S&P Global changed its outlook on Hungary’s BBB- sovereign credit rating from “stable” to “negative.” This means that Hungary is at risk of being downgraded—into the below investment-grade category—if its fiscal situation continues to deteriorate.

According to T. Rowe Price credit analyst Ivan Morozov, this is quite a significant development. It reflects S&P Global’s concern about Hungarian fiscal developments, which are challenging ahead of what could be very competitive elections next year, and Hungary’s strained relations with the EU, which Morozov believes are unlikely to improve in the near term.

Overall, Morozov believes there is a considerable chance of S&P Global downgrading Hungary after the elections, likely to be held in spring 2026. To avoid that, officials would need to address the fiscal deficit swiftly after the elections. While Hungary’s credit rating does not seem to be the most pressing issue the country faces at this moment, Morozov believes it could become that in about one year. In addition, recent developments are also important for Hungary’s eastern neighbour, Romania, as Morozov believes it would be difficult for S&P Global to downgrade Hungary ahead of Romania, raising chances of a Romanian downgrade this year.

In Türkiye, the central bank held its scheduled monetary policy meeting, and policymakers surprised investors by raising the one-week repo auction rate from 42.5% to 46.0%. This action follows three rate cuts since late December. Simultaneously, policymakers raised the overnight lending rate from 46% to 49% and the overnight borrowing rate from 41% to 44.5%.

According to the post-meeting statement, central bank officials noted that monthly core goods inflation is “expected to rise slightly in April due to recent developments in financial markets.” They also believe that leading indicators “point to a level of domestic demand above projections despite some loss of momentum in the first quarter, suggesting a lower disinflationary impact.” In addition, they noted that they are closely monitoring “potential effects of the rising protectionism in global trade on the disinflation process through global economic activity, commodity prices and capital flows.”

Central bank officials remained firm in their belief that the “tight monetary stance is strengthening the disinflation process through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.” They also reiterated their intention to maintain a tight monetary stance “until price stability is achieved via a sustained decline in inflation.”

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.7% (1.4% YTD), the Bloomberg Global High Yield Index (hedged to USD) 1.6% (flat YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 1.5% (2.1% YTD).

US Treasuries generated positive returns for the week, rebounding some from the prior week’s sell-off sparked by heightened uncertainty around global trade. Intermediate-term Treasury yields saw the most notable decreases, followed by long- and short-term yields. On Wednesday, the hawkish comments from Fed Chair Powell triggered some risk-off market sentiment that helped drive gains in the Treasury market. Over the week, the 10-year Treasury yield decreased -16bps, ending at 4.33% from 4.49% (down -25bps YTD). The 2-year Treasury yield decreased -16bps, ending the week at 3.80% from 3.96% (down -44bps YTD).

Over the week, the 10-year German bund yield declined -10bps, ending at 2.47% from 2.57% (up 11bps YTD). The 10-year UK gilt yield decreased -19bps, ending the week at 4.56% from 4.75% (flat YTD).