2025 Weekly Update

Market update

The S&P 500 closed the week at 5,074.08, -9.08% lower. The Dow Jones closed at 38,314.86, -7.86%, with the Nasdaq lower by -10.02%. The volatility index VIX closed the week at 45.31, up from 21.65. The Euro Stoxx 600 fell -8.44%.

The 10-year UST closed at 3.99%, down from 4.25% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -27bps. US Corporate Bond spreads: Investment Grade spreads widened +15bps at 181bps and High Yield spreads widened +64bps at 424bps. German 10-year Bunds yield closed at 2.58% down from 2.73% a week before. In Europe, Corporate Investment Grade spreads widened +11bps at 114bps and High Yield widened +40bps at 379bps.

The US Dollar Index (DXY) depreciated -0.98% last week and closed at 103.02. The Euro closed at 1.0956 (+1.18%); the Yen appreciated +1.94%, closing at 146.93 and the Swiss Franc appreciated +2.27%, closing at 0.8608. Gold closed at $3,038.24, depreciating -1.52%. Oil was lower, Brent closed at $65.58 (-10.93%) and WTI at $61.99 (-10.63%).

Macroeconomy

Reciprocal tariffs

President Trump announced tariffs under the International Emergency Economic Powers Act (IEEPA) as he declared a national emergency over the trade deficit. Countries will face a minimum tariff of 10%, with much higher rates for many major trading partners. Some of the tariff rates appeared broadly in line with expectations, such as the 20% on the EU and 10% on the UK, but with higher than anticipated rates on most Asian economies, ranging from 24% on Japan to 46% on Vietnam. And in China’s case, a reciprocal tariff of 34% comes on top of a 20% increase in tariffs announced earlier this year. The scaling of the reciprocal tariffs used a formula based on the size of a country’s relative goods trade surplus with the US, with the 10% minimum for countries that run a trade deficit with the US. The 10% baseline tariff was due to take effect from past Saturday, with higher individual rates effective next Wednesday (April 9). The reciprocal tariff plans contain several exemptions. Trade with Canada and Mexico has been excluded for the time being, though a part of this already faces a 25% tariff over the fentanyl and migration emergency announced under IEEPA. Critical minerals and gold/bullion, pharmaceuticals, semiconductors, lumber and copper are also outside of the scope of the reciprocal tariffs, but these are under separate sectoral trade investigations, while steel & aluminium and auto imports will still face 25% tariffs as recently announced. Trump’s comments did leave the door open for potential negotiations to lower tariffs but his executive order also left room for further escalation, saying that the President may further “increase or expand in scope the duties imposed” should any trading partners retaliate.

Powell speech

Fed’s Chair Powell gave a planned speech on Friday. Powell’s tone shifted from the FOMC post-meeting press conf. last month, as he sounds much more worried about tariffs, noting that they are set to be far larger than anticipated, which raises the risk of a stagflationary outcome for the economy by pressuring growth and pushing inflation higher. On the question of whether the effect on inflation from tariffs will be “transitory”, Powell sounded a bit less certain, warning that the impact could be more persistent. Trump just a few minutes before the Powell text hit called on the Fed to cut rates, but this speech suggests the Fed isn’t prepared to take such a step, underscoring how the White House and FOMC remain on a collision course.

Jobs report

March non-farm payrolls came in stronger than expected. The Establishment survey headline job additions number for Mar came in ahead of expectations at +228k (vs. consensus at +140K). Revisions to the Establishment survey were negative at -48k for Jan. and Feb. combined. Within the Establishment survey, total private sector job additions were solid at +209K (vs. expectations at +135K). Federal government employment declined by 4k in March, following a loss of 11k jobs in Feb. Note that employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey. The Household Survey revealed a 201K jump in the number of employed people in Mar vs. Feb. The unemployment rate rose to 4.2% (up from 4.1% in Feb. and above the consensus forecast of 4.1%), but the increase was because of good reasons (the participation rate climbed to 62.5% vs. 62.4% in Feb). Wage growth was weaker - average hourly wages came in +3.8%, below the 4% forecast and down from +4% in Feb. Average weekly earnings growth was even less at +3.23%. The workweek length was in line with expectations at 34.2 hours.

US data

March ISM services data came in beneath expectations. The headline index was down to a 9-month low of 50.8 (vs. 52.9 expected), and the employment component (46.2) slumped to its lowest since December 2023. The ISM manufacturing print fell back into contractionary territory with a 49.0 print (vs. 49.5 expected). Moreover, the new orders component fell to a 22-month low of 45.2, whilst the prices paid component surged to 69.4, which is the highest it’s been since June 2022. The weaker ISM release saw the Atlanta Fed’s GDPNow Q1 estimate (adjusting for trade in gold) fall to a new low of -1.4%, while the model’s estimate of real private domestic final sales, which are much less distorted by trade volatility, fell to a still positive but weak +0.4%.

EU data

In Europe, CPI fell back to +2.2% in March on the flash reading, in line with expectations. The core CPI reading fell to +2.4% (vs. +2.5% expected), which is the lowest it’s been since January 2022. In the Euro Area, the February unemployment rate came in at 6.1% (vs. 6.2% expected), which is the lowest rate since the single currency’s formation. The final manufacturing PMI for March, which was revised down a tenth from the flash reading to 48.6. In Germany, the EU-harmonised inflation surprised on the downside at +2.3% (vs. +2.4% expected). That followed last week’s releases showing downside surprises in France and Spain, so those collectively pointed on the downside. However, the Italian reading was stronger than expected, moving up to +2.1% (vs. +1.8% expected).

Global central banks

The Reserve Bank of Australia left the Official Cash Rate (OCR) unchanged at 4.1% at the conclusion of the April monetary policy meeting. In an accompanying statement the central bank sounded cautious about the outlook and reiterated that returning inflation sustainably to target remains the highest priority, thus failing to give clarity on when the next rate cut might arrive. Attention now turns to the next two-day meeting on 19-20 May, where markets expect a second cut after February’s 25bps cut, which was the first reduction since late 2020.

Highlights

On rates

Sovereign bond yields fell globally after the tariffs announcement as investors rushed into safe-haven bonds. In the US, the 2yr Treasury yield ended the week down -14.8bps to 3.50%, while the 10yr yield closed -6.7bps lower at 3.93%, below 4% for the first time since September 2024. There were big moves in credit markets, with US HY spreads seeing their biggest 2-day widening since the Covid-19 pandemic. Given the downside risks to economic growth, market participants are revising down their terminal rate expectations for rates. Investors are now pricing in 100bps worth of Fed cuts for the year (up from 75bps before April 2nd) and a terminal rate of 3.0%. Over in Europe, bond yields also fell lower across the board, with those on 10yr Bunds down -7.7bps and French OATs down -4.6bps. Terminal rate expectations edged lower with a rate of 1.8% for the ECB, 3.5% for the BoE, and -0.07% for the SNB. Elsewhere, the 10-year JGB yield that fell by more than 30bps to 1.18%.

What to watch

• Monday: US Feb. cons. credit; China: March foreign reserves; Germany Feb. industrial production, trade balance; Eurozone Feb. retail sales
• Tuesday: US March NFIB small business optimism; Japan Feb. BoP current account & trade; France Feb. trade & current account balance
• Wednesday: US FOMC meeting minutes, Feb. wholesale trade sales; Japan March consumer confidence index; New Zealand RBNZ decision
• Thursday: US March CPI, federal budget balance, initial jobless claims; China March CPI, PPI; Japan March PPI, bank lending
• Friday: US April Univ. of Michigan survey, March PPI; UK February monthly GDP; Japan March M2, M3; Germany Feb. current account balance