Key Market Takeaways

1. Tariff Easing Signals Relief, But Volatility Persists

Trump softened his rhetoric on tariffs and clarified he does not plan to dismiss Fed Chair Powell. Markets responded positively, but his mixed messages and continued trade uncertainty---especially with China---kept investors on edge.

2. Fed Debate Deepens Amid Political Pressure

Trump renewed his criticism of Powell before backtracking. Fed officials remain divided over the pace and timing of rate cuts. Markets are still pricing in three or more cuts for 2025.

3. Gold Pulls Back as Risk Appetite Returns

After hitting a record above $3,500/oz, gold prices retreated as equities rebounded and the dollar regained ground. However, uncertainty keeps safe-haven demand elevated.

5. China Holds Firm, Expands Stimulus Options

China rejected U.S. claims of negotiation progress, but may consider rolling back some tariffs. Meanwhile, authorities expanded credit support and hinted at further monetary easing.

6. Central Banks Split on Next Moves

While the ECB maintains a dovish outlook and may cut again in June, the BoJ and RBA remain cautious, citing tariff impacts and inflation uncertainty. The BoE may cut in May amid faltering confidence.

This Week in Numbers

Tariffs, uncertainty, and Trump's back-and-forth rhetoric continue to weigh on market sentiment. This week:

1. The U.S. Dollar gained 0.31% against major peers, but remains down 8.54% year-to-date.

2. U.S. Treasury yields moved lower:

• The 2-year yield declined 2.8%,

• The 10-year yield fell 3.86%.

3. Equity markets rebounded sharply:

• The S&P 500 rose 4.56%, trimming year-to-date losses to 6%.

• The Nasdaq 100 surged 6.3%, though still down 7.54% YTD.

• The Nikkei 225 gained 4.73%, but remains down 10.16% this year.

• The Euro Stoxx 50 climbed 4.2%, now up 5.59% YTD.

• In contrast, China's CSI 300 slipped 0.23%, extending its YTD decline to 4.06%.

4. In commodities:

• Gold fell 2.12% over the week, but remains up 26.15% year-to-date.

• Silver outperformed, rising 2.17% on the week and up 15.07% YTD.

• Oil prices tumbled, with U.S. crude (WTI) down 5.09% for the week and nearly 15% lower YTD.

Across the Globe: Last Week

U.S. Recap - Relief Rally Fades Amid Persistent Trade and Growth Risks

Global markets saw partial relief as President Trump softened his tariff stance and withdrew threats against Fed Chair Powell. The dollar rebounded, equities rallied, and Treasury bonds recovered. However, persistent uncertainty over U.S.--China trade relations continues to weigh on sentiment.

While Trump hinted at tariff reductions if talks progress, Beijing firmly denied any breakthrough and demanded unilateral tariff rollbacks. Meanwhile, baseline tariffs remain at 10% for most partners, while tariffs on China stand at 145%, pushing the overall effective U.S. tariff rate close to 23%-raising concerns over inflation and slower growth. Economists now forecast U.S. GDP growth slowing to 1.4% in 2025, with recession risks rising to 45%.

Consumer sentiment deteriorated further, with the University of Michigan survey showing long-term inflation expectations at 4.4%---the highest since 1991. Despite markets pricing in three Fed cuts this year, officials remain cautious amid elevated inflation risks. Upcoming data on inflation and jobs will be key for shaping monetary policy expectations.

Europe in Focus -- Recovery Falters Amid Tariffs and Softening Growth

Eurozone

The European Central Bank has struck a more optimistic tone on inflation, with President Christine Lagarde stating that the "disinflation process is progressing well" and inflation is expected to stabilize around the 2% target. Officials noted that U.S. tariffs could have a short-term disinflationary effect.

However, broader global uncertainties are weighing heavily on sentiment. Preliminary data showed eurozone consumer confidence deteriorated further in April, while the HCOB PMI signaled continued contraction in economic activity, led by services.

GDP growth is forecast to slow from 1.2% to 1.0% year-over-year in Q1, while headline inflation is expected to ease to 2.1%, and core inflation to hold around 2.5%. With inflation falling and activity weakening, markets are increasingly pricing in an ECB rate cut by June, with projections for further easing into year-end.

UK

The UK economy showed a strong consumer spending rebound in Q1 2025, with retail sales rising 0.4% in March and annual growth reaching 2.6%, both exceeding expectations. Consumer spending grew 1.6% for the quarter---the fastest pace since 2021---providing momentum since the Labour Party took office.

However, sharp increases in council taxes and energy bills in April have triggered a steep deterioration in household confidence. The GfK consumer confidence index fell to -23, the lowest level since Labour assumed power, while forward-looking indicators from the British Retail Consortium worsened significantly.

Recent data showing a contraction in private sector activity in April, particularly in services, underscores the UK economy's vulnerability to the combined effects of tariffs and domestic cost pressures. With growth risks rising, the Bank of England is expected to cut rates by 25 basis points at its May 8 meeting, bringing the base rate down to 4.25%.

Asia Watch -- Balancing Growth Amid Rising Tariff Headwinds

China

Despite President Trump's softer rhetoric last week suggesting possible tariff reductions if talks with China progress, Beijing firmly rejected claims of any negotiation advances, keeping uncertainty elevated.

Sources indicated that China is considering suspending 125% tariffs on select U.S. goods such as medical equipment and industrial chemicals, but no official confirmation has been made. Meanwhile, Trump complicated matters further, stating he would only lower tariffs if Beijing made "substantial" concessions, while China insisted the U.S. must first lift tariffs unilaterally.

Since early April, U.S.--China tariff rates have climbed to levels economists warn could cripple trade flows---145% on Chinese goods and 125% on U.S. goods. As trade tensions persist, China is stepping up domestic support measures, including boosting credit access for exporters, adding banking liquidity, and preparing potential rate cuts if necessary.

Although China's economy expanded by 5.4% in Q1, authorities remain cautious about longer-term risks. Officials have emergency stimulus plans ready but are holding back for now, monitoring developments closely. Simultaneously, Beijing is expanding diplomatic efforts to strengthen ties with the EU and mitigate the fallout from U.S. tariffs.

Overall, China is pursuing a multi-pronged strategy: resisting U.S. pressure while reinforcing domestic resilience and building new international alliances.

Japan

Tokyo's consumer inflation accelerated sharply in April, with core prices (excluding fresh food) rising 3.4% year-over-year---beating market expectations of 3.2%---while headline inflation climbed to 3.5% from 2.9%. The figures, seen as a leading indicator for national inflation, reinforced that price pressures remain consistently above the Bank of Japan's (BoJ) 2% target.

Despite the firm inflation backdrop supporting the case for further rate hikes, BoJ policymakers are treading cautiously due to escalating U.S. tariff risks. According to a Bloomberg survey, no policy change is expected at the upcoming May 1 meeting, and expectations for a near-term hike have faded, with October now emerging as the more likely window.

Meanwhile, Japanese assets have benefited from global "Sell America" sentiment, with foreign inflows reaching their highest levels since 1996. The yen strengthened below 140 per dollar, and the Nikkei 225 gained nearly 5% last week. However, a stronger yen poses risks to corporate profits and inbound spending, adding complexity to BoJ policy decisions.

Updated economic projections are expected at the May meeting, with growth forecasts likely revised down from 1.1% to 0.7%. BoJ officials continue to emphasize the need for more time to fully gauge the impact of U.S. tariffs, particularly given the significant exposure of Japan's auto and steel exports to American markets.

At the same time, Japan's top trade negotiator is scheduled for further talks with U.S. officials, amid hopes that a deal could be reached within weeks to ease some of the external pressure.

Australia

As Australia heads toward its May 3 general elections, public opinion polls show the Labor Party leading the Liberal-National Coalition by a slim margin of 52% to 48%. The election campaigns have centered around cost-of-living concerns, fueled by persistent inflation, tight monetary conditions, and a deepening housing crisis.

First-quarter inflation data due this week is expected to show the trimmed mean CPI rising by 2.9% year-over-year, reinforcing expectations that the RBA may need to keep rates higher for longer. Meanwhile, U.S.--China trade tensions pose external risks for Australia's China-dependent sectors such as mining and agriculture.

With domestic inflation pressures and global trade uncertainties intensifying, the incoming government faces a challenging economic landscape.

Market Calendar: What to Watch This Week

This week, a heavy flow of key economic data will take center stage.

U.S.

In the U.S., investors will closely monitor Q1 GDP (forecast +0.4% annualized), core PCE inflation (expected to ease slightly to 2.6% YoY), and April employment data (NFP forecast +130K), which are expected to offer the first clear signals on the economic impact of Trump's tariff policies.

Consumer confidence data will provide fresh insights into household sentiment, while private-sector employment reports will be assessed ahead of Friday's critical nonfarm payrolls release. Additionally, personal income and spending figures will offer a snapshot of Americans' financial health and consumption behavior, key drivers of future growth forecasts.

Europe

In the Eurozone, markets will first focus on consumer confidence and business climate indicators, followed by inflation, GDP growth, and labor market data---all crucial for gauging the region's resilience amid escalating trade risks.

Asia

In Japan, retail sales data will be scrutinized to assess the health of consumer spending. Although no major policy moves are expected from this week's Bank of Japan meeting, investors will look for any new guidance regarding inflation and rate hike expectations.

In Australia, inflation and consumer spending releases will be critical ahead of the May 3 general election. Persistent cost-of-living pressures and rising global trade tensions are likely to influence both economic momentum and voter sentiment.