US markets: Earnings and easing trade tensions spark optimism

U.S. equity markets extended their upward momentum, with the S&P 500 Index posting its second consecutive weekly gain and closing out its ninth straight day in positive territory. The Nasdaq Composite surged by 3.42%, fuelled by robust earnings from major technology firms. Small and mid-cap stocks also saw a fourth week of gains, reflecting broad-based investor confidence.

Early in the week, sentiment was buoyed by signs of de-escalating trade tensions. The White House announced a rollback on certain tariffs related to autos and parts, while Commerce Secretary Howard Lutnick hinted that a significant trade deal was approaching finalization. Investors welcomed these developments as a potential boost to global growth.

Later in the week, attention shifted to corporate earnings. Nearly 40% of the companies in the S&P 500 by market capitalization reported quarterly results, including several from the influential “Magnificent Seven” tech group. Despite some caution in forward guidance due to ongoing global uncertainty, investors remained upbeat, encouraged by the ability of firms to navigate slower growth and supply chain disruptions.

The economic data was mixed. Job openings fell to 7.2 million in March, the lowest since September, suggesting a potential cooling in labour demand. Private payroll growth also slowed significantly, according to ADP. However, Friday’s official jobs report painted a brighter picture, with employers adding 177,000 jobs in April — beating expectations and holding the unemployment rate steady at 4.2%.

Meanwhile, the U.S. economy contracted by 0.3% in the first quarter — its first decline since 2022 — primarily due to a rise in imports and reduced government spending. Despite this, consumer spending rose 0.7% in March and inflation remained flat month-over-month, indicating potential resilience in domestic demand.

Bond markets reacted to the data, with Treasury yields rising after Friday’s jobs report. Municipal bonds rallied, while investment-grade corporates gave back some recent gains. High-yield bonds found support amid low issuance and ongoing investor interest.

European markets: Economic growth surprises, but outlook cautious

European markets rallied as tariff concerns eased, with the STOXX Europe 600 Index rising 3.44%. Country-level indices also moved higher, led by Germany’s DAX (+4.63%), Italy’s FTSE MIB (+4.13%), and France’s CAC 40 (+3.57%). The UK’s FTSE 100 rose 2.15%.

Economic growth across the eurozone accelerated, with GDP rising 0.4% in the first quarter, double the rate of the previous quarter and exceeding analyst forecasts. Spain and Italy posted stronger-than-expected results, while Germany and France returned to modest growth. Ireland’s GDP jumped 3.2%, though multinational activity often skews those figures.

However, inflation remained a concern. Headline inflation held at 2.2%, and core inflation — which excludes volatile food and energy prices — rose to 2.7%, surpassing expectations. These figures could influence future monetary policy decisions.

Despite stronger growth, confidence indicators weakened. The European Commission’s economic sentiment gauge dropped to 93.6, its lowest since December, and consumer sentiment remained negative. This suggests that while the region is growing for now, concerns over trade and inflation could weigh on activity in the months ahead.

In the UK, the housing market showed signs of softening. Nationwide’s house price index fell 0.6% in April as first-time buyer demand eased following the expiration of a tax incentive. Meanwhile, new mortgage approvals declined for a third straight month.

Business sentiment also deteriorated in April. Lloyds Bank’s business barometer fell 10 points to 39%, driven by fears over the impact of tariffs and rising employment costs. Together, these indicators reflect growing caution in the British economy.

Asia-Pacific: Japan gains, China faces headwinds

Asian markets saw diverging outcomes. Japan’s Nikkei 225 Index gained 3.15%, buoyed by continued accommodative policies from the Bank of Japan (BoJ). The BoJ held its key interest rate at 0.50% and downgraded its economic and inflation forecasts for 2025 and 2026. While underlying inflation remains sluggish, the BoJ affirmed its intent to continue with gradual policy normalization when conditions permit.

Despite dovish signals, Japan’s economic data was underwhelming. Manufacturing activity declined, and both industrial production and retail sales fell short of expectations. Still, the BoJ emphasized that domestic demand remains supported by a tight labour market and rising wages.

In China, markets declined slightly amid a holiday-shortened week, with the CSI 300 and Shanghai Composite both down modestly. Economic indicators pointed to weakness: manufacturing PMI fell to 49, the lowest since December, while the non-manufacturing index also declined.

Nevertheless, there were signs of potential improvement. China’s Ministry of Commerce suggested it was open to resuming trade talks with the U.S., and reports indicated that China may exempt certain American goods from tariffs. These steps could help ease trade tensions and support investor sentiment moving forward.

China’s 2025 growth target of 5% remains at risk, though analysts believe the government has the financial tools to implement further fiscal support if needed. The months ahead will be key to determining the country’s ability to navigate the current challenges.

We’ll continue to monitor how these developments unfold, helping investors stay informed and prepared in an ever-changing financial landscape.