Weekly Comment: Markets stabilise as stocks extend recovery

Market overview – Richard Carter, Head of Fixed Interest Research

Positive developments towards a potential de-escalation in ongoing trade tensions and US President Donald Trump seemingly walking back his attack on Jay Powell, chair of the Federal Reserve, contributed to a more upbeat market backdrop last week. US Treasury Secretary Scott Bessent’s statement that the current high level of tariffs between the US and China are not sustainable, signalling an openness to negotiations that could reverse the recent tit-for-tat escalation between the world’s two largest economies, was another positive.

“Neither side believe that these are sustainable levels,” said Bessent referencing the current145% levy on Chinese products and the 125% levy on US products. “This is the equivalent of an embargo and a break between the two countries in trade does not suit anyone’s interest,” said Bessent.

The situation remains extremely fluid and could change at any moment, but there has been a clear softening of rhetoric in recent days which has led to a semblance of calm returning to financial markets. US stocks have recouped most of the losses since 2 April, the day that the wide-ranging tariff increases were announced.

Sentiment-based economic indicators continue to show potential warning signs on the health of the US economy, with the April flash purchasing managers’ index (PMI) indicating that US business activity growth has slowed to its lowest level in 16 months. Although there was an unexpected increase in the manufacturing sector, services growth slowed more to drag a composite index to 51.2 from 53.5 prior (50 demarks the line between expansion and contraction). Prices charged for goods and services increased at the fastest pace in over a year, with respondents attributing the rise to the impact of tariffs.

Investors will be watching economic releases in the coming days for any signs that support, or refute, the recent weakness in “soft” data. Friday’s US jobs report tops the bill and is expected to show a solid pace of job growth and an unchanged unemployment rate at 4.2%. Before that, there will also be the first look at US Q1 GDP which will serve to show the state of the economy before the tariff announcements.

Weekly economic announcements:

Last week, the MSIC All Country World index (MSCI ACWI) rose 4.0% (-1.3% YTD) as global equities extended their recent recovery to move back to not far off flat for the year.

United States:

US stocks outperformed, rising 4.6% for the week (-5.7% YTD, all returns in local currency unless otherwise stated). Earnings season provided some positive updates which boosted sentiment, along with the hopes a de-escalation on the trade front. 73% of the companies reporting first-quarter results through Friday morning beat consensus forecasts, according to FactSet.

Last week growth shares outperformed value stocks, while small caps lagged large caps. Tech-based indices posted a larger weekly gain of 6.7% (-9.8% YTD) but remain significantly lower thus far in 2025. The coming days will see a number of important earnings updates from big tech companies, with this week having around 40% of the benchmark, by market cap, reporting.

US government bond yields declined, with the 10-year Treasury yield ending at 4.24%, down from 4.33% (-34 basis points, 0.34%, YTD).    

United Kingdom:

UK stocks built on their positive returns for 2025, adding 1.8% last week (4.4% YTD). The pound was little changed against the US dollar, ending at US$1.33. After economic growth ground to a halt last year there has been some more positive signs of late, most recently an unexpected rise in retail sales for March. The 0.4% increase was far better than the -0.4% consensus forecast. The IMF lowered its estimate for UK economic growth this year to 1.1% from 1.6%.

UK government bond yields broadly tracked their US counterparts, with the 10-year gilt yield declining 8 basis points (0.08%) to end the week at 4.48% (-9 basis points YTD).

Europe (ex UK):

The MSCI Europe ex UK gained 3.3% on the week (4.3% YTD). German stocks (4.9%, 11.7% YTD), and Italian bourses outperformed (4.7%, 10.7% YTD) as they have for much of the year, while French equities were broadly in line (4.0%, 2.9% YTD). The euro was little changed at US$1.14.

The German government cut its GDP forecast for the year, now expecting no growth instead of the 0.3% projected in January. Joachim Nagel, Bundesbank president, said that trade tensions would have a significant impact on Germany’s export-led economy.

Approver: Quilter Cheviot, 30 April 2025  

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