RELATIVELY BETTER
Global equities rallied and bond yields rose last week as the de-escalation in the US-China trade war suggested that a severe economic downturn would likely be averted, resulting in fewer central-bank rate cuts to support activity.
Global PMIs - a business survey - on Thursday are the main data of note this week while trade developments are set to remain in focus.
US consumer prices for April rose by 2.3% y/y at the headline level while core inflation, which excludes volatile items like food and energy, was unchanged from March at 2.8%. This data likely did not show the full impact of tariffs on prices, which are likely to come through in the next few months.
April retail sales rose by 0.1% m/m while that of the control group, which is used to calculate GDP, fell by 0.2% with the latter below expectations.
The University of Michigan consumer sentiment index fell to the second-lowest level on record in May while one-year-ahead inflation expectations rose to 7.3%, the highest since 1981.
Moody's downgraded the US' triple-A sovereign debt rating by one notch to Aa1 due to rising government debt levels and the increasing budget deficit that "significant economic and financial strengths...no longer fully counterbalance".
Global stocks rallied on the back of the US-China agreement to reduce tariffs, which suggested an improved outlook for global activity and supported sentiment towards riskier assets. The S&P 500 rose by 5.3% while the STOXX Europe 600 was up by 2.1% for the week.
Government bond yields rose (bond prices fall as yields rise) as lower tariffs from the US and China could result in a smaller hit to growth than had been expected and this implied fewer rate cuts from central banks. The 10-year US Treasury yield increased by 7bps to 4.44% while that for the equivalent German bund rose by 4bps to 2.58%.
A softer economic backdrop compared to the start of the year has led rate markets to price in two 25bps cuts in 2025 in the Fed funds rate (current target range: 4.25-4.50%), down from four cuts projected a month ago when trade tensions were heightened. The ECB is also expected to reduce its deposit rate by a further 50bps during the rest of the year from 2.25% at present.
- Tue 20th Eurozone - Consumer confidence
- Thu 22nd Global PMIs • US - Initial jobless claims
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.