Investment Viewpoint: some healing?

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Markets and macro insights with Bernard Swords, Chief Investment Officer

Were there improvements in the general market picture last week?

• After another phase of policy confusion in the US, markets ended the week in a more positive position. The US government has shown willingness to ease concerns when faced with sharp market reaction. On Easter Monday, President Trump criticized Jerome Powell, Chair of the Federal Reserve, for not cutting interest rates.

• The contention was not new; but on this occasion, it was interpreted as signalling an intention to remove Powell from his role, which caused the equity market to fall by over 2%. Recovery followed the President’s denial of any such intention. Such sudden shifts show the danger for investors of heeding speculation rather than hard fact, though the current political climate in the US makes the distinction difficult.

What was the situation regarding tariffs?

• There was a de-escalation in trade tensions last week. President Trump exempted many electronic products, including smartphones and computers, from “reciprocal” tariffs. The exempted goods account for almost 20% of China’s exports to the US. Treasury Secretary Scott Bessent has stated that the current standoff with China is “unsustainable,” while President Trump has promised that tariffs will be “substantially” reduced as part of any new trade deal.

• A fundamental difficulty in easing trade tensions centred on the question of which superpower would take the first step to conciliation. It seems that the US is moving in that direction. There is a long way to go, but the situation has progressed in a more hopeful direction than evident from the “liberation day” of the tariff announcements.

How did equity markets fare last week? 

• In the end, equity markets had a good week, with the world index up over 3%. The US market has shown a slightly stronger performance, up nearly 4%, but the euro area is up over 3% as well. Lagging somewhat behind was the Asia Pacific market, up just over 2%. The sectors which showed the largest falls (IT, Communication Services and Consumer Discretionary) led last week. It was a more cyclical market, with Industrials and Financials the next best performing groupings.

• We would expect this pattern to persist if the recovery in equity markets continues, though remain concerned about the impact of tariffs on consumer discretionary spending. The US Dollar also had a bad start to the week, but has recouped it losses since then. Should recovery continue, the dollar will also continue to strengthen.

What new data was released last week? 

• The only meaningful data released last week was one of the major business surveys (the PMIs) in the US and the euro area. In both regions the composite index fell: in the US, it was down from 53.5 to 51.2, and in euro area,from 50.9 to 50.1. The biggest weakness in the US survey was a notable drop in New Export Orders, including in the area of services, where future results should be carefully monitored.

• In the euro area, New Orders in the Service sector was the main drag on the headline figure. Seeing consumer sentiment decline is not a positive development but at least we are not seeing a major fall as yet.

The week ahead: what to watch out for

This week will be busy as regards data releases: the non-Farm Payrolls and Q1 GDP appear in the US. We will also get an update on Consumer Confidence, as well as one of the main business surveys (ISM Manufacturing). In the euro area, we will receive the latest inflation report (CPI) and Q1 GDP. In China, the main business surveys (PMIs) will be released.