Global Markets Weekly Wrap KW 17 : U.S. Stocks Surge as Trade Tensions Ease; Economic Data Mixed

Global Markets Weekly Wrap KW 17 : U.S. Stocks Surge as Trade Tensions Ease; Economic Data Mixed 

U.S. Stocks Rise on Positive Trade Developments

U.S. stock markets experienced an upward trajectory throughout the week, buoyed by various reports suggesting that the trade tensions between the United States and China might be easing. Speculation about potential agreements with other international trade partners also contributed to the market's positive momentum. Furthermore, comments from President Donald Trump, in which he appeared to retract his previous threat to remove Federal Reserve Chair Jerome Powell, provided further reassurance to investors. The Nasdaq Composite stood out with a notable recovery from the previous week's losses, while small- and mid-cap stocks showed their third consecutive week of gains.

Better-than-expected earnings from several companies also seemed to play a role in the market's positive outlook. As per FactSet data, 73% of the firms that had reported first-quarter earnings through Friday had exceeded analysts' expectations. However, despite the positive earnings results, market activity remained relatively subdued, with trading volumes falling below the year-to-date average, according to traders from T. Rowe Price.

Business Activity Growth Slows to 16-Month Low

In economic news, S&P Global's April Flash Purchasing Managers' Index (PMI) revealed that the pace of U.S. business activity growth had slowed to its weakest point in 16 months. While manufacturing activity saw an unexpected uptick, rising from 50.2 in March to 50.7 in April, the services sector showed a significant deceleration. This dragged the overall PMI down to 51.2, compared to 53.5 the month before. A reading above 50 signals expansion, while a reading below that threshold indicates contraction.

The prices businesses charged for goods and services also climbed at the fastest rate in over a year, with much of the increase attributed to tariff-related factors. Expectations for future growth dipped to the lowest level since July 2022, although the decline was less pronounced in the manufacturing sector, which remained hopeful for positive effects from government policies.

Additionally, data from the Census Bureau indicated that durable goods orders grew for the third straight month in March, increasing by 9.2% compared to February. However, a large portion of this increase stemmed from a significant surge in transportation equipment orders, particularly for commercial aircraft, as businesses rushed to make purchases before potential tariff hikes. Excluding transportation, orders were flat month-over-month, possibly reflecting hesitation among businesses amid ongoing economic and policy uncertainties.

March Sees Sharp Decline in Home Sales Amid Mortgage Rate Woes

In housing news, the National Association of Realtors (NAR) reported that sales of previously owned homes in the U.S. fell 5.9% in March, marking the sharpest monthly drop since November 2022. The seasonally adjusted annual rate of 4.02 million sales was also the lowest for a March since 2009. According to Lawrence Yun, Chief Economist at NAR, sluggish home buying and selling activities were primarily due to affordability concerns linked to high mortgage rates. Nonetheless, Yun noted that despite the challenges, the housing market remained relatively stable, with mortgage delinquencies at historically low levels.

Consumer Sentiment Declines for the Fourth Consecutive Month

Consumer sentiment, meanwhile, continued to slide, with the University of Michigan's final index reading for April coming in at 52.2. This was still an 8% decline from March. Joanne Hsu, Director of Surveys of Consumers, pointed out that expectations for the economy had dropped dramatically, with a 32% decline in the past three months — the steepest such drop since the 1990 recession. Consumers' growing concerns were linked to persistent trade policy uncertainty and the potential resurgence of inflation. In fact, inflation expectations for the year ahead surged to 6.5%, the highest level since 1981, up from 5% in March.

U.S. Treasury Bonds See Modest Gains Amid Economic Growth Fears

U.S. Treasury bonds posted modest gains, with yields — especially on longer-term bonds — declining as expectations for an economic slowdown increased. Bond prices and yields move in opposite directions, so the drop in yields reflected investors' flight to safety. Municipal bonds, however, underperformed, with seasonal weakness continuing to exert pressure on the sector. On the other hand, investment-grade corporate bonds outperformed Treasuries. Meanwhile, the investment-grade corporate bond market saw issuance in line with expectations, with demand for higher-quality bonds remaining strong.

Performance of Key U.S. Stock Indices

The week ended with U.S. stock indices showing a mixed performance. The Dow Jones Industrial Average rose by 971.27 points, closing at 40,113.50, but it was still down by 5.71% year-to-date. The S&P 500 closed at 5,525.21, up by 242.51 points, but down 6.06% for the year. The Nasdaq Composite experienced the most significant jump, rising 1,096.49 points, or 9.98%, from the previous week. Small- and mid-cap stocks, as measured by the S&P MidCap 400 and Russell 2000 indices, also posted notable gains.

Europe Sees Gains as Trade Tensions Ease

European markets, in local currency terms, also saw positive movements, with the pan-European STOXX Europe 600 Index gaining 2.77%. Much of this was driven by President Trump's signals that he was willing to reduce trade tensions with China, along with his decision to retract his threat to fire Federal Reserve Chair Jerome Powell. Major European stock indexes all rose, with Germany's DAX climbing 4.89%, France's CAC 40 gaining 3.44%, and Italy's FTSE MIB rising by 3.80%. The UK's FTSE 100 added 1.69%.

ECB Chief Economist Says Recession in Eurozone Unlikely

Philip Lane, the European Central Bank's Chief Economist, told Bloomberg that while tariff uncertainties could suppress economic growth, he did not foresee a recession in the eurozone, due to the region's diversified trade relationships. ECB President Christine Lagarde also hinted that the central bank might reassess its growth forecasts during the June policy meeting.

German Economy Faces Slowdown Amid U.S. Tariffs

The German government, in response to U.S. trade tariffs introduced in early April, revised its GDP growth forecast for the year, now expecting stagnation instead of the previously projected 0.3% expansion. Bundesbank President Joachim Nagel mentioned that the trade tensions could significantly impact Germany's export-driven economy, possibly leading it into a mild recession. Germany's GDP has contracted for the past two years.

Eurozone Business Activity Dips Slightly

Business activity in the eurozone also showed signs of slowing down in April, with the S&P Global composite index — which combines services and manufacturing output — falling to 50.1 from 50.9 in March. While levels above 50 indicate expansion, the slight drop suggests that the region's economic growth is cooling. While services activity weakened, the manufacturing sector showed resilience, managing to expand for a second consecutive month.

UK Retail Sales Surprise; Consumer Confidence Declines

The UK's retail sales showed an unexpected rise of 0.4% in March, surpassing forecasts for a 0.4% decline. This came after a downwardly revised 0.7% increase in February. Despite this positive result, rising energy costs and fluctuating financial markets dampened consumer sentiment in April. Meanwhile, the International Monetary Fund (IMF) lowered its UK growth forecast for 2025 to 1.1% from the previously projected 1.6%.

Japan's Stock Market Rises Amid Global Trade Easing

Japanese stock markets also posted gains over the week, with the Nikkei 225 Index increasing by 2.8% and the broader TOPIX Index rising by 2.7%. The market's positive sentiment was driven by signs of de-escalation in global trade tensions. The yen weakened slightly against the U.S. dollar, moving to around 143 yen per dollar.

Japan Faces Inflationary Pressures as Central Bank Eyes Further Rate Hikes

Japan's inflation rate in the Tokyo region, a leading indicator for national trends, surged to 3.4% in April, surpassing expectations and marking the fastest pace in two years. This spike in inflation was attributed to rising food prices and the phasing out of government subsidies for energy costs. The Bank of Japan (BoJ) is closely monitoring these inflationary trends and has indicated that it will raise rates if inflation converges toward its target of 2%. However, the uncertain economic effects of U.S. tariffs complicate the central bank's policy decisions.

China's Economic Outlook Amid Trade War

Mainland Chinese stock markets saw modest gains for the week, as investors anticipated additional government stimulus measures to mitigate the effects of U.S. tariffs on China's economy. The CSI 300 Index rose by 0.46%, and the Shanghai Composite Index gained 0.61%.

China's Politburo, the Communist Party's top decision-making body, stated that it would implement emergency plans to handle external shocks, including new monetary policies and financing tools to support technology, consumption, and trade. Despite the ongoing trade conflict, analysts believe that China is in a relatively strong position to manage the economic fallout, especially after better-than-expected first-quarter growth figures.

Tensions Escalate Between India and Pakistan Following Terrorist Attack

Tensions between India and Pakistan rose sharply after a terrorist attack in Kashmir killed 26 tourists. In response, India declared that the Indus Waters Treaty, which governs water distribution between the two countries, was in "abeyance," effectively giving India more control over the flow of water from the Indus River. While both countries adopted a cautious diplomatic approach, analysts believe that neither side is eager to escalate the conflict further.

Economic Concerns in Turkey

In Turkey, the central bank continued its proactive monetary policy stance as it battled inflationary pressures. While disinflation was underway, risks remain

Major economic events in the US include: 

Initial Jobless Claims; U of Mich Sentiment; Durable Goods Orders; Leading Index; MBA Mortgage Applications; S&P Global Manufacturing PMI; New Home Sales

Major economic events around the world include:

France Manufacturing PMI; Germany IFO Business Climate; Singapore CPI; Japan Manufacturing PMI; Eurozone Manufacturing PMI; Tawain Exports YoY