Investment Viewpoint: keep calm and carry on

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Markets and macro insights with Brian Flavin, Senior Research Analyst

How did markets perform last week?

• Markets rallied strongly in the first half of the week, following a further de-escalation in the China-US tariffs dispute. The US agreed to cut levies on Chinese goods from 145% to 30% for 90 days. China also lowered levies on US goods from 125% to 10% for the same period. Equities rose a dramatic 4% last week, largely due to a strong performance in the US, which has now outperformed Europe by almost 10% in euro terms over the past month. This strength derives from a rebound in cyclicals and in the growth areas already dominated by the US: IT, Communications and Consumer Discretionary. As well as the positive China-US news, President Trump’s visit to the Middle East yielded upbeat headlines for AI and US investment more broadly, benefiting companies like Nvidia and Amazon, among other US giants.

What is the global picture for equities?

• In euro terms, global equities are now 12% off their April 8 lows and 8% off their 2025 highs, leaving them down just 3% year-to-date. This is a remarkable turnaround in a brief period, and reflects the volatility experienced by markets as they grapple with the policy shifts of the new US government. Global growth forecasts are turning incrementally positive again, having suffered significant cuts in the wake of the first tariff announcements. This more positive outlook is made possible by an improvement in prospects for the US, where a recession now seems less likely. Mirroring this overall perspective, bond markets are starting to price in a smaller number of rate cuts by the US Federal Reserve and to a lesser extent the European Central Bank. The US 10-year treasury bond rate rose toward 4.5% earlier in the week, only to fall back slightly after some weaker economic data. The rate was nevertheless up month-to-date.

What other data corroborates the positive outlook?

• The dollar has once again moved in tandem with bond yields and is up 1.3% month-to-date, while gold has fallen around 4%. Oil prices are up around 5%. All this is consistent with a calmer outlook than before. There is now a sense that the US administration wants to move away from the tariff episode, and back to the domestic agenda. The first draft of Trump’s attempt at a budget reconciliation bill began its progress through Congress last week. The legislation seeks to extend tax cuts that are due to expire at the end of the year, while identifying spending cuts that will help finance the tax relief. However, there are competing interests within the Republican party, and it is not clear if this could lead to fiscal loosening later in the year. Whatever occurs in terms of government spending, the prevailing expectation for markets seems to be that draconian trade and tariff policies will subside – unless there is a relapse after the 90-day pauses.

What measures are being applied to specific sectors of the economy?

• While the broad tariffs and trade policy tensions have eased, sector-specific policies have received renewed attention. Last week, Trump signed a second executive order addressing drug price reforms in the US. The order stipulates that US consumers must pay no more for pharmaceutical products than the lowest price levied in other nations. This measure follows a previously announced investigation into pharmaceutical production on national security grounds, with the aim of justifying tariffs on imported products. Although there are many unanswered questions about how these policies could be implemented, the pharma sector has seen multiple compression even after a strong earnings and outlook season. Such effects may continue to be felt in the short term, but an underlying expectation of longer-term growth and earnings strength in the healthcare sector remains. Goodbody continues to maintain an overweight position in US Healthcare, though with a focus on areas with less potential impact.

What data was released last week?

• Macro data was lighter last week but the key highlights were April’s consumer (CPI) and producer price (PPI) inflation and retail sales data in the US. CPI came in close to expectations and showed no signs of tariffs increasing prices as yet. Headline CPI is now set at 2.3% y/y versus 2.5% previously expected, while core CPI (ex-food and energy) is at 2.8% y/y and in line with expectations. Producer prices fell, driven by lower services margins where businesses have yet to push through tariff hikes. These numbers feed into the Federal Reserve’s preferred measure of inflation (core PCE) and leave it near March’s 2.6% y/y. In other words, April’s inflation data shouldn’t by itself alter the outlook for Fed policy. With an increasing likelihood of some acceleration in the months ahead, the recent pricing in of fewer rate cuts looks appropriate. Core retail sales were down 0.2% on the month. Although below expectations of a 0.3% rise, the performance should be seen in the context of strong growth in recent months. The US consumer is still in resilient shape, but we should probably expect a less robust performance in the months ahead. Goodbody’s neutral positioning at asset allocation level remains appropriate.

The week ahead: what to watch out for

The week ahead is relatively light for macro data but we will get a read on Chinese Industrial Production and Retail Sales data for April, the UK’s April PMI, Inflation and Retail Sales and Japan’s April Inflation.