21st April 2025

U.S.

Markets

• The U.S. stock market had a mixed performance during the holiday-shortened week (markets were closed on Good Friday).

• Large-cap tech stocks underperformed, dragging down major indexes:

• Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed lower.

• In contrast, smaller-cap indexes outperformed:

• S&P Midcap 400 and Russell 2000 posted gains.

• The information technology sector was one of the weakest, due to:

• The U.S. announcing additional export restrictions on semiconductors to China, escalating trade tensions.

• Shares of major AI-related companies like NVIDIA and AMD fell sharply on the news, pulling the sector down.

Federal Reserve & Monetary Policy

• Fed Chair Jerome Powell, speaking at the Economic Club of Chicago, contributed to negative market sentiment:

• Described the recent tariff increases as larger than expected.

• Warned these tariffs would likely lead to higher inflation and slower economic growth.

• Reiterated a "wait-and-see" approach to interest rate changes, which markets took as a sign that rate cuts are unlikely in the near term.

Housing Market

• The NAHB Housing Market Index rose slightly to 40 in April (from 39 in March), but remained below the neutral threshold of 50, indicating ongoing pessimism among homebuilders.

• Policy uncertainty is reportedly making it difficult for builders to price homes or make key decisions.

• Housing starts fell 11% in March to an annualised pace of 1.32 million units, well below the 1.42 million estimate.

• D.R. Horton, a leading homebuilder, reported:

• A slower-than-expected start to the 2025 spring selling season.

• Ongoing concerns from buyers about affordability and consumer confidence.

• Lowered revenue and home closings guidance for 2025.

Consumer Spending

• Retail sales rose 1.4% in March, the strongest monthly gain in over two years.

• 11 of 13 categories saw increased sales.

• Auto sales jumped 5.3%, as consumers likely rushed to buy vehicles ahead of a planned 25% tariff on automobiles.

• Building materials, sporting goods, and electronics also experienced solid sales growth.

Fixed Income / Bonds

• U.S. Treasuries posted positive returns, rebounding from the previous week’s losses.

• The biggest yield drops occurred in intermediate-term Treasuries, followed by long and short maturities.

• Bond prices rose as yields fell, driven by Powell’s hawkish remarks and a shift to risk-off sentiment.

• Municipal bonds also posted positive returns and showed signs of market stabilization after recent volatility.

Europe

Markets

• The STOXX Europe 600 Index rose 3.93% for the week ending April 17, recovering from earlier April declines.

• Gains were fuelled by:

• President Trump delaying higher tariffs on European imports.

• A dovish tone from the ECB, increasing expectations for additional rate cuts.

• Major European indexes saw broad gains:

• FTSE MIB (Italy): +4.97%

• DAX (Germany): +3.13%

• CAC 40 (France): +2.24%

• FTSE 100 (UK): +4.58%

ECB Policy Update

• The European Central Bank (ECB) cut its deposit rate to 2.25%, as expected.

• It removed language from its statement suggesting monetary policy is “becoming less restrictive.”

• Reaffirmed a meeting-by-meeting, data-driven approach and avoided committing to a fixed path for rates.

• Despite progress on disinflation, the ECB noted a deteriorating growth outlook due to ongoing trade uncertainties.

• T. Rowe Price’s Chief European Economist expects the deposit rate to fall to 1.5% or lower, further below the neutral rate.

United Kingdom

• Headline inflation slowed to 2.6% in March, down from 2.8% in February, and below consensus expectations (2.7%).

• Lower prices for gasoline, games, toys, and hobbies were key contributors.

• Services inflation (a focus for policymakers) also fell to 4.7% from 5%.

• Labor market data was mixed:

• Unemployment remained steady at 4.4%.

• Payroll data from tax authorities showed a 78,000 decline in March employment, the sharpest drop since 2020.

• Wage growth remained strong, with weekly average earnings up 5.9% YoY, slightly higher than the prior period.

Japan

Markets

• Nikkei 225 rose 2.36% and the TOPIX Index increased 2.59% during the week.

• Gains were supported by optimism around U.S.-Japan trade talks:

• Japan is seeking tariff relief and better trade terms.

Monetary Policy

• The Bank of Japan (BoJ) continues to express caution regarding rate hikes.

• Governor Kazuo Ueda emphasised the need for flexibility and support in light of global uncertainty.

• The BoJ reiterated it would raise rates only if economic and price forecasts are met.

• The 10-year government bond yield declined to 1.31% from 1.36%.

Currency and Trade

• The yen strengthened to the upper JPY 142 range vs. the U.S. dollar (from ~JPY 143.5).

• Despite the currency’s importance, FX has not yet been addressed in bilateral trade talks.

• March exports rose 3.9% YoY, below expectations (4.5%) and sharply down from February (11.4%).

• Imports rose 2.0% YoY, returning to growth after February’s decline, but still below forecasts (3.1%).

China

Markets

• Mainland Chinese markets advanced:

• CSI 300: +0.58%

• Shanghai Composite: +1.30%

• Hang Seng Index (Hong Kong) rose 2.30%, amid expectations of government stimulus.

Economic Data

• Q1 GDP grew 5.4% YoY, beating forecasts but largely driven by front-loaded shipments ahead of U.S. tariff hikes.

• Analysts warn that upcoming tariffs will weigh on future growth.

Policy Outlook

• Major banks have lowered 2025 GDP forecasts, doubting China can meet its 5% target.

• Stimulus expectations are rising:

• The Politburo’s late-April meeting may reveal plans for additional support.

• T. Rowe Price economists believe China has the fiscal space to respond with stimulus to mitigate tariff impacts.

Other Key Markets

Hungary

• S&P Global downgraded Hungary’s outlook from “stable” to “negative” on its BBB- sovereign credit rating.

• This increases the risk of a downgrade to junk status, especially post-2026 elections.

• Concerns include fiscal deterioration and strained EU relations.

• Romania’s outlook may also be impacted, as S&P might hesitate to downgrade Hungary before Romania.

Turkey

• Central bank unexpectedly raised key interest rates:

• One-week repo: 42.5% → 46%

• Overnight lending: 46% → 49%

• Overnight borrowing: 41% → 44.5%

• Officials cited:

• Expected rise in core goods inflation due to recent financial market moves.

• Domestic demand remaining above projections, dampening disinflation.

• Need to monitor rising global protectionism and its inflationary effects.

• The central bank affirmed its commitment to tight monetary policy until price stability is achieved.

PLEASE NOTE:

This content is for informational purposes only and should not be construed as investment advice or a specific recommendation to act on any investment. It is importnat to assess your own circumstances before making investment decisions. The views expressed are as of the date indicated and whilst we believe the information is from reliable sources, we do not guarantee it’s accuracy. Past performance is not indicative of future results, and all investments carry market risks, including the potential loss of the principal.