2025 Weekly Update

Market update

The S&P 500 closed the week at 5,659.91, -0.47% lower. The Dow Jones closed at 41,249.38, -0.16%, with the Nasdaq lower by -0.27%. The volatility index VIX closed the week at 21.9, down from 22.68. The Euro Stoxx 600 rose +0.29%.

The 10-year UST closed at 4.38%, up from 4.31% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 5bps. US Corporate Bond spreads: Investment Grade spreads narrowed -9bps at 182bps and High Yield spreads narrowed -27bps at 387bps. German 10-year Bunds yield closed at 2.56% up from 2.53% a week before. In Europe, Corporate Investment Grade spreads narrowed -3bps at 118bps and High Yield narrowed -13bps at 391bps.

The US Dollar Index (DXY) appreciated +0.31% last week and closed at 100.34. The Euro closed at 1.1250 (-0.42%); the Yen depreciated -0.28%, closing at 145.37 and the Swiss Franc depreciated -0.52%, closing at 0.8313. Gold closed at $3,324.98, appreciating +2.61%. Oil was higher, Brent closed at $63.91 (+4.27%) and WTI at $61.02 (+4.68%).

Macroeconomy

US-China agreement

The US and China have agreed to lower tariffs for the next 90 days in a major de-escalation of the trade war. As part of an agreement discussed in Geneva over the weekend, the US will lower tariffs on Chinese goods to 30% from 145% and China will reduce duties on US imports to 10% from 125%.

US-UK deal

The US-UK trade deal stuck to the 10% initial tariff baseline but with carve outs from even higher tariffs for certain sectors like autos (now 10% tariff rate) and steel (0% tariff rate), which would bring the effective tariff rate to slightly below 10%. UK agreed to fast track American goods through customs, purchase $10bn worth of Boeing planes, and lower barriers to American agricultural, chemical, and energy exports. The deal still puts the UK in a worse position than it was before Liberation Day even with Prime Minister Starmer touting it as a “historic victory” between the two countries.

Fed on hold

The FOMC kept the fed funds rate on hold for a third meeting running at 4.25-4.50%, while sticking to a patient tone amid heightened uncertainty. The prepared statement noted that uncertainty had “increased further” as risks of both “higher unemployment and higher inflation have risen”. In the press conference Chair Powell acknowledged opposing pressures on its dual mandate stemming from larger-than-expected tariffs announced so far and offered little guidance on the policy path ahead. Powell emphasized the elevated uncertainty but also noted that the economy remains resilient and repeated that policy is well positioned to respond, while pushing back on the idea of pre-emptive rate cuts.

PMIs

In the US, headline ISM services unexpectedly rose from 50.8 to 51.6 (vs. 50.2 expected), with new orders rising to a 4-month high of 52.3. The ISM survey also pointed to elevated price pressures, with the prices paid index rising to 65.1,   highest level since January 2023. In Europe, final PMIs came in stronger than the flash readings. The Euro Area composite PMI came in at 50.4 (vs. flash 50.1), and the services PMI was revised up to 50.1 (vs. flash 49.7), putting it back in expansionary territory. In Japan, the final Jibun Bank Japan Services PMI for April returned to growth, climbing to 52.4 from March's flat 50.0. This figure, which surpassed the preliminary 52.2, indicates stronger orders within the service sector, a marked difference from the persistent challenges faced by manufacturers. In China, the Caixin services PMI dropped to 50.7 from 51.9 in March, and 51.8 expected, reflecting weaker new orders and uncertainty from US tariffs.

Bank of England

The BOE cut rates by 25bps to 4.25% as expected. The message was more hawkish than markets expected though. The vote split went three ways, with five members voting for a 25bps cut, two voting for a 50bps cut, and two voting for no change to the bank rate. The last bit was the surprising element. Overall, BOE governor Bailey said there was a need for a “gradual and careful” approach, citing tariff shocks as a factor to both higher inflation and a weaker growth outlook. Markets are currently pricing 2 more cuts this year.

China measures

The PBOC announced a package of support measures, including a 10bps policy rate cut, a 0.5pp reserve requirement ratio cut and an expansion of lending facilities for the services and consumer sectors. The moves signal a clear shift towards looser monetary policy in response to the trade shock and have similarities to the PBOC response last September, when China moved to announce a broad set of support measures to address its growth slowdown.

China data

Chinese exports in April surprised significantly on the upside. Exports grew by 8.1% y-o-y, compared to a 2% increase forecast. In sequential terms, Chinese exports declined by -3.8% m-o-m in April, which is a much smaller contraction compared to expectations. By country, Chinese exports to the US dropped by -23.7% m-o-m. Given the prohibitive tariff at 145% on most Chinese goods, the magnitude of decline was much smaller than what most analysts have expected. The sharp increase of exports to ASEAN countries in April (+7.3% m-o-m) indicates ongoing trade re-routing.

Oil

Oil prices fell following the OPEC+ agreement to increase oil production by another 411k barrels a day starting in June. The move follows a similar increase in May and confirms a stark turnaround away from the production cuts that have persisted since 2022. Reuters and Bloomberg reported that Saudi Arabia has threatened to continue this pace of production increases if other OPEC+ countries don’t stop producing above quota levels.

Highlights

On rates

Sovereign bonds underperformed as the Fed left rates on hold. The 10yr Treasury yield was up +7.0bps to 4.38%, and the 2yr yield closed the week at 3.89%, up +6.7bps. Fed expectations moved in a hawkish direction with the market pricing in 66bps worth of incremental cuts for the year, down from a recent peak of >100bps hit just before the jobs report last week. Elsewhere, the 10yr bund yield rose +2.9bps to 2.56%, while in Japan, the 10yr bond yield ended the week at 1.37%, +10.5bps higher.

Earnings season

We are entering the final stages of the Q1 earnings season with over 85% of S&P 500 companies having reported. From those, 77% topped EPS expectations and 50% beat sales estimates. Earnings growth is coming in at 12% y-o-y, surprising positively by 9%, while sales growth is coming in at 4% y-o-y with an upside surprise of 1%. Looking at EPS, the best performing sectors are Healthcare, Communication Services, Consumer Discretionary, Information Technology, and Utilities. Meanwhile, Energy, Materials, Consumer Staples, and Real Estate are reporting negative earnings growth. In Europe, 61% of Stoxx600 companies that reported beat EPS estimates. Earnings growth is negative at -3% y-o-y, although above expectations by 4%, and sales growth is 2% y-o-y. Energy and Consumer Discretionary are the biggest laggards and weighing heavily on the region’s overall earnings delivery. Excluding these two sectors, European earnings growth is coming in at 7% y-o-y. Major releases this week include Walmart, Alibaba, Tencent, Sony, Siemens, and Richemont.

What to watch

• Monday: Korea Exports; Japan Bank Lending
• Tuesday: India CPI; UK Employment and Weekly Earnings; German ZEW Survey; US NFIB Small Business Optimism, CPI
• Wednesday: Japan PPI; German CPI; US MBA; Mortgage Applications
• Thursday: Australia Employment; UK GDP; US Empire Manufacturing, Retail Sales, PPI, Initial Jobless Claims
• Friday:  Japan GDP; Singapore Exports; University of Michigan Consumer Survey