2025 Weekly Update

Market update

The S&P 500 closed the week at 5,363.36, +5.70% higher. The Dow Jones closed at 40,212.71, +4.95%, with the Nasdaq higher by +7.29%. The volatility index VIX closed the week at 37.56, down from 45.31. The Euro Stoxx 600 fell -1.92%.

The 10-year UST closed at 4.49%, up from 3.99% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 15bps. US Corporate Bond spreads: Investment Grade spreads widened +21bps at 202bps and High Yield spreads widened +34bps at 458bps. German 10-year Bunds yield closed at 2.57% down from 2.58% a week before. In Europe, Corporate Investment Grade spreads widened +14bps at 128bps and High Yield widened +52bps at 431bps.

The US Dollar Index (DXY) depreciated -2.84% last week and closed at 100.1. The Euro closed at 1.1355 (+3.64%); the Yen appreciated +2.31%, closing at 143.54 and the Swiss Franc appreciated +5.34%, closing at 0.8148. Gold closed at $3,237.61, appreciating +6.56%. Oil was lower, Brent closed at $64.76 (-1.25%) and WTI at $61.5 (-0.79%).

Macroeconomy

On tariffs

The tariff saga ended the week with a 90-day pause announced Thursday on specific reciprocal tariff rates on non-retaliating countries, with all such countries instead facing a minimum additional tariff rate of 10%. President Trump suggested that the decision had been made as people had been “a little bit afraid”. And while Commerce Secretary Lutnick later denied that the move came in response to market pressure, Trump’s comments suggested some sensitivity to the market stress, as he said that “The bond market is very tricky” and “I saw last night where people were getting a little queasy”. Trump noted that he would look at tariff exemptions for certain companies, but also signaled further sectoral tariffs, notably on pharma. Regarding China, the White House confirmed 145% tariffs. Neither the US nor China are showing signs of backing down, with President Trump expressing confidence in his tariff plans, even as he acknowledged potential "transition problems". On other fronts, the EU delayed its previously announced retaliatory tariffs by 90 days, the US begin formal talks with Vietnam and Politico reporting that Treasury Secretary Bessent was now at the helm of the administration’s trade team. Over the weekend, The White House decided to exempt huge sub-sectors of the electronics industry (smartphones, computers, semiconductors, etc.) from its 125% China tariff and its 10% global reciprocal baseline tariff. The decision is retroactive to April 5. Notably, this announcement was posted to the US Customs and Border Protection Website (instead, the 90-day pause was made by President Trump himself on Truth Social). It looks like the 20% China fentanyl tariff is still in place, along with the China tariffs from Trump 1.0, so the electronics industry is not receiving a complete reprieve. In addition, Trump talked about implementing tariffs specifically on the semiconductor industry, and plans for such a move remain in place according to the NYT (which means tech is not out of the woods on tariffs).

US prices

The March CPI came in lower than expected, with headline at +2.4% y-o-y (down 40bps from +2.8% in Feb. and below the consensus of +2.5%). Core eased to +2.8% y-o-y (down 30bps from +3.1% in Feb. and below expectations at +3% forecast). On a m-o-m basis, the headline was -0.1% (vs. +0.1% expected) with core +0.1% (vs. consensus at +0.3%). Energy was a big source of headline disinflation, coming in at -2.4% m-o-m. Looking at core categories, areas of disinflationary pressure included used cars (-0.7% m-o-m), medical care commodities – mainly prescription drugs (-1.1% m-o-m), and transportation services – mainly airline fares down 5.3% m-o-m (-1.4% m-o-m). On the other side, Shelter prices rose 0.2% m-o-m, a small downtick vs. +0.3% in Feb., as a modest uptick in OER (+0.4% m-o-m vs. +0.3% in Feb) was offset by steep declines in hotels/motels (-4.3% m-o-m). In terms of Producers Price Index - PPI, it was also lower than expected in March. The headline reading came in at -0.4% m-o-m (vs. consensus at +0.2%) and +2.7% y-o-y (vs. expectations at +3.3% and down from +3.2% in Feb). Over 70% of the m-o-m decrease came from prices for final demand goods, which fell 0.9%. The index for final demand services declined 0.2%. The core PPI (ex-food, energy, and trade) came in +0.1% m-o-m, below the +0.3% forecast - although there was an upward revision to Feb. from +0.2% to +0.4% m-o-m.

Consumer data

The latest Michigan report was negative, with a further erosion in sentiment (50.8, down from 57 in Mar.) and expectations (47.2, down from 52.6 in Mar.) alongside a continued inflation spike (1-year inflation expectations surged 170bps m-o-m to 6.7% while 5-10-year advanced 30bps to 4.4% - both were above expectations). According to the Univ. of Michigan, “sentiment has now lost more than 30% since Dec. 2024 amid growing worries about trade war developments that have oscillated over the course of the year”. The confidence drop was “pervasive and unanimous across age, income, education, geographic region, and political affiliation”. To note, interviews were conducted between March 25 and April 8, closing prior to the April 9 tariff pause. Also, the NFIB’s small business optimism index for Mar. fell by more than expected to 97.4 (vs. 99.0 expected), the biggest monthly decline since June 2022, back when inflation was still well above target, and the Fed were hiking rates aggressively. Notably, there was also a sharp dip in the proportion saying they expected the economy to improve, falling back to a net +21%, having been at +37% in February. Indeed, it was the sharpest monthly drop since Dec. 2020.

Fedspeak

Recent rhetoric from policymakers has echoed the more hawkish tone from Chair Powell's speech two weeks ago. Officials have sounded more worried about a persistent inflation shock and have emphasized it is their "obligation" to defend price stability and ensure inflation expectations do not become unanchored. Officials have also started to acknowledge more volatile conditions in markets, and have indicated the Fed's commitment to ensure smooth market functioning by using their tools if conditions require it. Notably, Boston Fed President Susan Collins affirmed the Fed “does have tools to address concerns about market functioning or liquidity should they arise”. She added that the central bank “would absolutely be prepared” to intervene if necessary.

Highlights

On rates

In the aftermath of the reciprocal tariffs announcement on 2 April, US Treasuries continued to massively underperform last week. The 10yr yield recorded its biggest weekly increase since 2001, rising +49.5bps to 4.49%. The 30yr yield rose +46.2bps, its biggest rise since 1987, and reached 4.87%, its highest level since 2008. Although most of the sharp movements in yields in recent days can be attributed to a lack of liquidity and market dislocation, the rise in the term premium also highlights market participants’ concerns about the direction of US trade and fiscal policy, challenging the safe-haven status of US sovereign debt. Fed expectations moved in a hawkish direction, with the market pricing in 80bps worth of incremental cuts for the year (down from 100bps last week). Over in Europe, yields on 10yr bunds (-1bp) were unchanged, while UK gilts underperformed, rising as much as +17.4bps on a single day during the week. The 30-year gilt yield reached a multi-decade high of 5.65%, forcing the BOE to temporarily halt the sale of long dated bonds.

Currencies

We saw a historic dollar weakening. On Thursday, the euro posted its biggest gain against the greenback since 2015 (+2.30%). While the direct impact of tariffs is manageable for most euro area economies, the indirect effects, such as uncertainty and the slowdown in China and the US, remain significant and should affect the euro area economy. The European Central Bank (ECB) will meet on Thursday and investors expect a 25bps rate cut to 2.25%. The Swiss franc reached maximum historical levels vs. the dollar. The strength of the CHF is putting increasing pressure on the Swiss National Bank (SNB). Markets expect the SNB to cut its policy rate by 25bps in June, with a potential additional cut in September bringing the policy rate to -0.25%. A larger cut in June or an intermeeting cut cannot be ruled out if the CHF strengthens excessively. The SNB could also intervene in the foreign exchange market, but it has been rather reluctant to do so in recent years. One reason is the size of its balance sheet; the larger the balance sheet, the more its profit and loss fluctuate. Another reason the SNB might refrain from intervening in the FX market is the threat of Switzerland being labelled a currency manipulator by the US Treasury.

Earnings season

US Financials kicked off the 25Q1 earnings season and major banks posted strong results with EPS upside. JPM and MS were particularly solid as each posted strong revenue, thanks in part to Equities trading (+48% y-o-y at JPM and +45% at MS). Expenses were well controlled at BK, JPM, and MS. Overall, revenue for S&P 500 companies is expected to grow 4.3% y-o-y, down from 5.4% in 24Q4. With the exception of Industrials (-1.1%), all sectors are expected to deliver positive revenue growth. Technology is expected to lead with sales up 11.0% y-o-y, followed by Healthcare (7.6%) and Communication Services (6.4%). Earnings are expected to grow 7.3%, down from 18.2% in 24Q4 (which was the strongest quarterly growth since 21Q4). This week, 33 companies of the S&P will publish their results, including Goldman Sachs, J&J, Bank of America, Citi, UnitedHealth, American Express and Netflix. In Europe, major releases this week include LVMH, ASML, Nordea, and Heineken.

What to watch

• Monday: China exports; US NY Fed 1-Yr Inflation Expectations
• Tuesday: Australia RBA Policy Minutes; India Exports; UK Employment; Germany ZEW Survey; US Empire Manuf.; Canada CPI
• Wednesday: China Q1 GDP & March Macro Data; UK CPI; Eurozone CPI; US Retail Sales; Bank of Canada Policy Meeting
• Thursday: Japan Exports; Australia Employment; Bank of Korea Policy Rate; ECB Policy Rates; US Housing Starts, Initial Jobless Claims and Philadelphia Fed Business Outlook
• Friday: Japan CPI