2025 Weekly Update

Market update

The S&P 500 closed the week at 5,525.21, +4.59% higher. The Dow Jones closed at 40,113.50, +2.48%, with the Nasdaq higher by +6.73%. The volatility index VIX closed the week at 24.84, down from 29.65. The Euro Stoxx 600 rose +2.77%.

The 10-year UST closed at 4.23%, down from 4.33% a week before. The yield curve is slightly inverted with the yield spread between the 3-month and 10-year UST at -7bps. US Corporate Bond spreads: Investment Grade spreads tightened -8bps at 185bps and High Yield spreads tightened -35bps at 410bps. German 10-year Bunds yield closed at 2.46% down from 2.47% a week before. In Europe, Corporate Investment Grade spreads tightened -8bps at 117bps and High Yield tightened -18bps at 402bps.

The US Dollar Index (DXY) appreciated +0.24% last week and closed at 99.47. The Euro closed at 1.1365 (-0.25%); the Yen depreciated -1.05%, closing at 143.67 and the Swiss Franc depreciated -1.42%, closing at 0.8284. Gold closed at $3,319.72, depreciating -0.21%. Oil was lower, Brent closed at $66.87 (-1.60%) and WTI at $63.02 (-2.57%).

Macroeconomy

On tariffs

At the end of last week, President Trump suggested that his administration has been talking with China on trade. He added, “we’re going to have a fair deal with China”. This came in contrast to comments from China officials, who said that there were no trade negotiations currently happening and that the US should revoke its unilateral tariffs if they wanted to start trade talks. From the media, Bloomberg reported that China is considering carving out exemptions to its tariffs on US goods given the stress it's causing in some areas. The WSJ reported that the China tariffs could be slashed down towards 50-65%, with the possibility of a tiered approach - 35% tariff on items that weren’t a national security threat, and a 100% tariff on strategic items. That would be less than half the 145% rate that’s in place right now. FT also reported that the US administration was planning to exempt car parts from some of the most onerous tariffs, avoiding stacking 20% China fentanyl and 25% steel and aluminum levies on top of the 25% auto tariffs. So whatever officials say there seems to be movement on both sides to pull back from the most extreme position of the last few weeks. In terms of other trade talks, Treasury Secretary Bessent said that the US and South Korea could reach an “agreement of understanding” this week.

Fedspeak

Comments from Fed officials were notably more dovish than Chair Powell’s, more concerned about inflation. For instance, Fed Governor Waller repeated his previous view that tariffs just represented a one-time price effect, and said that if he saw “a significant drop in the labor market, then the employment side of the mandate, I think, is important that we step in.” Earlier, we also heard from Cleveland Fed President Hammack, who said that if they had “clear and convincing data by June, then I think you’ll see the committee move if we know which way is the right way to move at that point in time”.

IMF

The IMF slashed their global growth forecasts relative to January, with widespread downgrades after the US tariff announcements. The global forecast for 2025 was cut half a point to 2.8%, and next year’s was also reduced by three-tenths to 3.0%. Those negative revisions happened across every region, although the US saw a particularly sharp downgrade of nine-tenths to 1.8%. Otherwise, Mexico saw an even larger 1.7pp downgrade, and is now projected to have a -0.3% contraction. Europe wasn’t affected quite as much, although Germany was downgraded three-tenths this year to show zero growth, following on from two annual contractions in 2023 and 2024.

PMIs

April flash PMIs showed a clear but modest deterioration, and in the US at least, they were still above the 50-mark separating expansion from contraction. So that helped to alleviate fears about an imminent recession. The US composite PMI was down to 51.2, which was the weakest print since December 2023. Meanwhile the Euro Area composite PMI just about remained in expansionary territory at 50.1, but that was also the weakest print since December.

US data

The labor market appeared to remain in decent shape for the time being. For instance, the weekly initial jobless claims were at 222k over the week ending April 19, in line with expectations. That was in line with where they’ve been over recent weeks, having oscillated between 216k-225k for the last 8 consecutive weeks now. Continuing claims (for the week ending April 12) fell back to 1.841m (vs. 1.869m expected), which was their lowest since late-January.

EU data

The Ifo’s business climate indicator from Germany unexpectedly rose to a 9-month high of 86.9 in April (vs. 85.2 expected). Fiscal expansion plans could be helping. The expectations component only saw a modest pullback to 87.4 (vs. 85.0 expected), thus avoiding the sharp drop that was widely expected. On the contrary, the euro area flash consumer confidence print posted its largest monthly decline since the 2022 energy shock, falling to its lowest level since November 2023.

Asia data

Tokyo CPI grew more than expected, rising to a two-year high of +3.5% y-o-y in April (vs. +3.3% expected) amid a recovery in private spending. Core CPI rose +3.4% y-o-y in April (vs. +3.2% expected). Japan's factory activity shrank for the tenth consecutive month in April, coming in at 48.5, above the 48.4 reading in March as new orders declined at the steepest rate in over a year amid US tariff concerns. Conversely, Japan's service sector experienced a robust rebound, with the au Jibun Bank services PMI climbing to 52.2. Meanwhile, the overall composite PMI expanded to 51.1 in April from 48.9 in March. Australia’s private sector's business activity slightly slowed. Flash services PMI dropped to 51.4 in April from 51.6 in March. The manufacturing PMI edged down to 51.7 in April, compared to 52.1 in March. The composite PMI fell from 51.6 to 51.4.

Highlights

On rates

US Treasuries saw gains last week, with yields dipping across the curve thanks to more positive headlines on tariffs and the economy. Moves were more pronounced at the long-end of the curve, with the 10yr yield falling -8.9bps over the week to 4.24%, marking its second consecutive weekly decline. The 10yr real yield also retreated to 1.97%, -12.3bps lower, closing beneath 2% for the first time in over two weeks. Fed expectations didn’t move much, with the market pricing in 88bps worth of incremental cuts for the year. Investors anticipate only a 11% chance of a rate cut at the May 6-7 FOMC meeting.

Earnings season

S&P 500 companies are beating low-bar expectations. From those that reported, around two-thirds posted EPS upside above 2%, with the positive surprise is attributed to the significant downgrades of EPS forecasts recently. Top line numbers are not as robust as EPS results but remain satisfactory, with the percentage of companies beating expectations slightly above the long-term average. Both earnings and sales growth have decelerated but remain optimistic for the forthcoming quarters, particularly in the latter half of the year. The "Magnificent 7" earnings y-o-y growth is expected to continue outpacing the rest, though the gap is predicted to narrow further, especially in 2026. This week, over 180 of S&P500 companies will announce results, including Microsoft, Meta, Apple, and Amazon from mega caps and Coca-Cola, General Motors, Visa, and Eli Lilly from other sectors. In Europe, EPS results, though not as strong as in the U.S., remain satisfactory and above the long-term average. However, sales results have been disappointing compared to the previous quarter, largely due to the appreciation of the Euro since last year. For 2025 and 2026, the STOXX Europe 600 EPS forecast has decreased by approximately 4% over the last two months, with Cyclicals and Energy being the main drivers of this downward revision.

What to watch

• Monday: US Dallas Fed Manufacturing Activity
• Tuesday: ECB CPI Expectations, Eurozone Confidence Indicators; US JOLTS Job Data, Conf. Board Cons. Confidence, Dallas Fed Services Activity
• Wednesday: Japan Retail Sales; Australia CPI; China PMI; Eurozone Q1 GDP; US ADP, GDP, PCE Index, Pers. Income & Spending; Canada GDP
• Thursday: BOJ Policy Meeting; Korea's Exports; US Challenger Job Cuts, Initial Jobless Claims, ISM
• Friday: Japan's Jobless Rate; Asia's Manufacturing PMI; Eurozone CPI; US Nonfarm Payrolls, Average Hourly Earnings, Durable Goods Orders