Weekly Overview 5. – 11. May 2025

The content of this post does not constitute financial advice. It is intended for information and education purposes only.

MoneyCraft recommends the PiQ Suite (Affiliate Link): MoneyCraft subscribers receive a promo code for 6 months FREE subscription to the PiQ Suite

The Week in Global Markets

FINANCIAL MARKETS SUMMARY:

– EUROPE: This was a mixed week for European stocks, with pan-European, German and Italian indices advancing, while French, Swiss and UK benchmark indices declined. The week was marked by unexpected jumps in industrial production and factory orders for March in Germany, according to provisional data. The former was mainly driven by the auto, pharma and machinery sectors, with production up for all types of goods – consumer, capital and intermediate. However, energy production dropped by 1.8% MoM, while output in construction was up 2.1% MoM. The real rise in factory orders was due to electrical equipment orders, machinery and equipment, transport equipment and auto and pharma orders. These increases preceded the introduction of the new US tariffs. In the UK, the Bank of England had a split vote, deciding to cut its policy rate by 25bp to 4.25%, to which financial markets reacted with a lower likelihood for the next rate cut. Nevertheless, most economists agree that one or two more quarter-point rate cuts in the course of this year can still be expected. BoE agents around the UK are reporting that firm feedback points to weakened demand in 2025 but are hoping that household confidence picks up later in the year. Businesses remain cautious as they prefer to wait and see whether the British economy picks up before investing and hiring this year. Data from the housing market in the country points to a slowdown in home purchases for first-time buyers. The euro ended the week weaker compared to last week, while the pound strengthened against the US dollar.

– UNITED STATES: Small and mid-cap stocks outperformed the benchmark indices this week, with the S&P 500, the Dow and the Nasdaq ending lower compared to last Friday. While that ended the recovery streak in some of these indices, investors showed some cautious optimism on hopes for improvement in the trade situation with China, pending the talks taking place in Geneva this weekend. US officials and US President Trump have signaled that there is progress being made, although he did set a goal for the tariffs to only be reduced to 80% before the talks had begun. So far, it is not clear in which aspects of trade this progress has been made, and it has not yet been confirmed by Chinese officials, but Trump commented on social media that free access to the Chinese market is necessary. US Treasury Secretary Bessent has reportedly commented that a briefing about the negotiations is coming and has described the agreement with China as a deal, without clarifying what could change in terms of de-escalation of tensions or lowering tariff rates. The process will likely continue (according to Commerce Secretary Lutnick, it could take dozens of rounds of talks) as topics such as alleged theft of intellectual property, currency manipulation, access to American tech such as semiconductors, and fentanyl flows to the US need to be resolved. Trump has commented that the US is not losing anything by not trading with China and has now stated that he would lower the tariffs if the talks during the weekend go well. Meanwhile, US companies have started to hire less, due to the uncertainty of the trade war, a drop in consumer confidence and the desire to start embracing more AI. The ISM data show that the services sector activity is expanding further (in contrast to manufacturing), but that prices are also rising, recording the highest reading for the last 2 years in March. Instead of an improvement in the situation in the Treasury market, we are seeing that optimism on trade (including the deal with the UK, which did not remove the 10% tariff) is not translating into lower yields. The 10y and 30y ended the week with higher yields, also driven by the Fed’s decision not to cut and its comments about higher inflation risks.

– ASIA-PACIFIC: This week, the yen depreciated to over 145 against the USD and the 10y JGB yield climbed to 1.36% as there were not major indications that the trade negotiations with the US were making progress. On the contrary, the US has cautioned that it might take much longer than the time taken to complete the UK deal, with Japan seeking a complete removal of the reciprocal tariffs. In China, optimism was also present in the stock market ahead of the talks with the US, with the Shanghai Composite and the CSI 300 both advancing week-on-week. But another key driver was the stimulus move by the People’s Bank of China (PBoC), which lowered its 7-day reverse repo rate and reduced its reserve requirement ratio in an attempt to support the economy and add liquidity in the system in the face of the trade war. The statement from the officials referred to the measures as necessary due to the uncertainties in the global economy, the economic fragmentation and the supply chain disruptions globally. Official exports data showed that foreign trade has remained resilient, despite the trade tensions with the States. While shipments to the US dropped 21% YoY after the tariff hike, exports to other areas such as the EU, ASEAN and India have rise and more than offset this decline, leading to an overall 8.1% rise in exports in April. This puts China in a relatively strong position in the trade negotiations as it shows that is has diversified its export model since the first Trump administration and is now less dependent on the US. In India, the stock market has taken a bit of a hit as tensions with Pakistan escalated and the countries have been responding to each other’s strikes. But the decline was smaller compared to the plunge observed on the Pakistan Stock Exchange. The volatility is likely to remain because, despite bragging by Trump and US Secretary of State Rubio for mediating a ceasefire, it appears to have been violated and the attacks have been reported to continue (and this statement was also later refuted by the Indian Foreign Ministry, which said the ceasefire was directly arranged between the two countries). Historically, the Indian stock market has managed to recover after the initial war shock within months, but the question now is whether this conflict could turn even worse. Earlier, it was reported that the Pakistani prime minister had called a meeting of the country’s National Command Authority, which takes security decisions related to its nuclear arsenal, increasing fears that this might escalate into a nuclear conflict, but later the defence minister said that no such meeting had been scheduled.

– BITCOIN: Bitcoin had another great week, rising to over $104k on US-China trade deal hopes. CoinTelegraph reported that liquidity is tightly clustered around the current spot price, with $106k possibly the next critical level to be overtaken. Bulls are, of course, looking forward to new all-time-highs from here on, with more erratic upswings expected in the following weeks, especially if the global macro situation improves. US Vice President Vance is expected to speak on May 28 at the 2025 Bitcoin Conference in Las Vegas.

policy rate overview AND INVESTMENT ENVIRONMENT

The Federal Reserve kept the fed funds rate steady this week at the 4.25% to 4.50% range. Fed Chair Powell stated that if the substantial tariff hikes remain in place, then they will likely cause inflation to rise further, growth to slow down, and unemployment to climb. Donald Trump kept his attacks on Powell going, as he said that he is too slow and “a fool”. But Powell has remained resolute in his determination not to enable the US president and stated in his press conference that he would not resign. If the Fed does cut now, in a few months, there is a risk they may have to reverse this and hike if inflation does spike. The FOMC statement clearly outlines that there are “risks to both sides of its dual mandate”, meaning that risks for both higher unemployment and higher inflation have gone up.