Global equities have continued their recovery, rising a further 2.5% or so over the past week in both local currency and sterling terms. They have now recovered the losses triggered by the shock tariff hikes announced on ‘Liberation Day’ on 2 April, although are still down 6% and 9% in local currency and sterling terms from their mid-February high.
Whereas the sell-off was very much driven by the US, the rebound over the last month has been much more uniform with most regions up 9-10% from their lows. The US remains 13% down from its February high in sterling terms while the rest of the world is now only off 2%.
Bonds were little changed last week while in the commodity space gold edged back above $3300/oz and oil fell 7% to $62/bbl. The slowdown in global growth, along with Saturday’s news that OPEC was increasing supply for the second month running, is behind the slide in oil prices which are now down as much as 15-20% year-to-date.
Last week saw the release of a spate of US economic data. Overall, this seemed to confirm a marked slowdown in growth but eased fears of an imminent slide into recession.
GDP did contract at an annualised 0.3% pace in the first quarter but was artificially depressed by a surge in imports ahead of the tariff hikes. Underlying domestic demand grew at a more reassuring 2.3% pace. The first set of numbers for April also provided some reassurance. US payrolls increased by more than expected and business confidence did not deteriorate significantly further as had been feared.
In the Eurozone, there was also some good news on activity, with GDP posting a stronger than expected 0.4% gain in the first quarter. Less encouragingly in Germany this morning, Merz failed to secure enough parliamentary votes to become German Chancellor. While Merz is still likely to be elected in a subsequent vote, this seems to illustrate the weakness of the coalition and casts doubt on its ability to maintain a united front going forward.
Meanwhile on the inflation front, the Fed’s favoured measure of core US inflation came in at 2.6% in March, the same as core Eurozone inflation in April.
The US earnings season was also centre stage for equity markets last week with a slew of results announced. With around 70% of the S&P 500 now reported, earnings are on track to post a robust 13% gain. Forward guidance, however, has been much murkier with tariffs looming large, and earnings growth is forecast to slow to 6-7% over the remainder of the year.
Four of the Magnificent Seven reported last week and presented a mixed picture. The more domestically focused Meta (Facebook) and Microsoft beat expectations and were up 10% or so over the week. Amazon and Apple, by contrast, warned of the hit from tariffs and were down over the period.
Last but not least, markets took heart from tentative signs that the US and China might be inching their way towards talks aimed at lowering the exorbitant 145% tariffs currently imposed on each other.
This coming week, central banks will be the focus with little macro data due for release. The Federal Reserve meets on Wednesday and the Bank of England on Thursday. The Fed looks all but certain to do the same as the Bank of Japan last Friday, namely leave rates unchanged. However, all the attention as ever will be on its forward guidance with the market currently forecasting rates to be lowered by 0.25% next month and 0.75% by the end of the year.
As for the BOE, it will release its latest set of economic projections and looks certain to cut rates by 0.25% to 4.25% with the market looking for rates to be back down to 3.5% by year-end.
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