Global markets weekly update

Major stock indexes finished the holiday-shortened week mixed (markets were closed Friday in observance of the Good Friday holiday). Smaller-cap indexes outperformed, with the S&P MidCap 400 and Russell 2000 Indexes posting gains, while the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all closed the week lower. The information technology sector was a notable decliner during the week, due in part to news that the U.S. government would add new restrictions on exports of chips to China in a further escalation of 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.

Comments from Federal Reserve Chair Jerome Powell appeared to add to the negative sentiment in the latter half of the 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 annualized 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 by 1.4% in March, the highest monthly increase in 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%, an indication that 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.

U.S. Treasuries generated positive returns for the week, rebounding some from the prior week’s sell-off that was sparked by heightened uncertainty around global trade. Intermediate-term Treasury yields saw the most notable decreases, followed by long- and short-term yields. (Bond prices and yields move in opposite directions.) T. Rowe Price traders noted that the hawkish comments from Fed Chair Powell on Wednesday triggered some risk-off market sentiment that helped drive gains in the Treasury market. Municipal bonds also posted positive returns, and our traders noted that the market was showing signs of stability following the prior week’s sell-off.

In local currency terms, the pan-European STOXX Europe 600 Index ended 3.93% higher over the seven days ended April 17, clawing back some of April’s sharp losses. President Trump’s decision to delay imposing higher tariffs and the European Central Bank’s (ECB) signal that more interest rate cuts were likely bolstered investor sentiment. Major stock indexes also rose over the same period. Italy’s FTSE MIB climbed 4.97%, Germany’s DAX gained 3.13%, and France’s CAC 40 added 2.24%. The UK’s FTSE 100 put on 4.58%.

The ECB cut its key deposit rate by another quarter of a percentage point to 2.25%, as expected. 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 that it was not precommitting to a particular rate path. While the ECB viewed the disinflation process as well on track, it warned that the outlook for growth 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 is expected by financial markets. In his view, 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.

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 labor 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.

Japan’s stock markets gained in the week ended Thursday, with the Nikkei 225 Index rising 2.36% and the broader TOPIX Index up 2.59%, in local currency terms, according to Bloomberg data. Sentiment toward the end of the period was boosted by tentative signs of progress in ongoing bilateral trade negotiations between the U.S. and Japan, where Japan is requesting that the tariffs imposed on its imports into the U.S. be reviewed and is pushing for more favorable trade terms.

On the monetary policy front, 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 that policy will 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 realized. The yield on the 10-year Japanese government bond fell to around 1.31% from the prior week’s 1.36%.

Demand for assets perceived as safer was high amid signs of an escalating trade war between the U.S. and China. The yen strengthened to the higher end of the JPY 142 against the U.S. dollar range, from about JPY 143.5 at the end of the previous week. Despite investors’ focus on the currency markets and the weakness of the yen, the topic of foreign exchange has to date not been included in the bilateral trade talks between the U.S. 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, due to the influence of U.S. steel and aluminum tariffs as well as 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.

Mainland Chinese stock markets advanced for the week ended Thursday amid expectations that Beijing will ramp up stimulus to blunt the impact of higher U.S. tariffs. The onshore benchmark CSI 300 Index added 0.58%, and the Shanghai Composite Index rose 1.30% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index advanced 2.30%.

China’s gross domestic product (GDP) expanded 5.4% in the first quarter from a year earlier, the country’s statistics bureau said on Wednesday. The better-than-expected increase gave little comfort for policymakers, however, as it reflected growth before higher U.S. tariffs kicked in earlier this month and was driven by front-loaded shipments from buyers seeking to get ahead of the tariff hikes, according to analysts. The impact of the U.S. 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%.

Many global banks in recent days 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 U.S.-sparked trade war has fueled 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.

Late last week, 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 an important 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 European Union, 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, which are 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 neighbor 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.

On Thursday, Türkiye's central bank held its scheduled monetary policy meeting, and policymakers surprised investors with their decision to raise 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.”