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Relief rally

7 May 2025 | 3 minutes to read

US GDP shrinks

The US economy contracted at an annualised rate of -0.3% in the first quarter of the year due to falling government spending and a surge in imports ahead of incoming tariffs. The first fall since 2022 was skewed by erratic data, with the White House calling GDP figures a “backward looking indicator” and blaming the Biden administration. Analysts mostly cautioned against viewing the print as the start of a more prolonged downturn as the US economy added 177,000 jobs in April – more than expected – and unemployment remained relatively low at 4.2%. Although earlier months’ jobs data were revised down by 58,000 and the Job Openings and Labor Turnover Survey (JOLTS) showed job openings decreased by 288,000 to c.7.2m by the end of March, the economy still looks fundamentally strong. This means the US Federal Reserve is unlikely to be in a hurry to cut interest rates to support growth, potentially placing Chairman Jerome Powell at loggerheads with President Trump, who has repeatedly called for lower interest rates.

Equity markets rally

The S&P 500 notched its second consecutive weekly gain and closed last week on a nine-day winning streak. Early-week optimism stemmed from signs of easing global trade tensions, including a rollback of tariffs on cars and auto parts, and speculation about major trade deals. The focus then shifted to corporate earnings, with nearly 40% of S&P 500 companies reporting Q1 results. The Nasdaq 100 finished last week up +3.4%, driven by better-than-expected results from tech giants including Microsoft and Meta.

Microsoft shares jumped 9% on Thursday last week after beating earnings expectations, fuelled by strong cloud-computing growth in Azure and AI-related demand. The company overtook Apple as the world’s most valuable listed firm. Apple, despite posting solid results, fell after warning of a $900 million tariff-related cost headwind this quarter. Meta also beat expectations and issued strong revenue guidance, easing fears of a slowdown in big US tech.

European markets followed suit: the FTSE 100 marked its 15th straight gain—a record streak—rising +2.2%. Germany’s DAX climbed +4.6% and France’s CAC 40 +3.6% (all in local currency). Oil prices slumped to over four-year lows. Brent crude fell -8.3% and WTI dropped -7.1% after OPEC+ signalled increased output amid softening demand outlooks and Saudi Arabia’s remarks indicated readiness for prolonged lower prices.

UK crypto

Chancellor Rachel Reeves unveiled new rules for cryptocurrencies last week, targeting industry growth and stronger consumer protections. In her speech at the UK Fintech week in London, Reeves announced her ‘Plan for Change’ to improve investor confidence and support the growth of financial technology. The new rules, set out in the draft legislation, will apply to firms providing services related to crypto assets like Bitcoin and Ethereum. A recent study by the UK’s Financial Conduct Authority (FCA) suggested that around 12% of adults in the UK owned cryptocurrencies last year – marking a 200% rise from 2021. Reeves intends to signal that the UK is open for business and committed to innovation – without compromising consumer protection.

Significant data: Japan, China, eurozone

Japan’s central bank held its policy rate at 0.5% and cut its 2025 growth forecast to 0.5% last week amid trade tensions with the US. Inflation in Japan has stayed above 2% for the past 36 months, giving some room to the central bank to raise rates in the coming months.

China’s manufacturing sector contracted in April with its PMI falling to a 16-month low reading of 49 as the impact of tariffs started hitting local producers (a reading below 50 marks a contraction on the previous month). The National Bureau of Statistics said external factors explained the decline, effectively meaning the deterioration of US-China trade relations. This data may also suggest deflation continues to strengthen.

The eurozone economy expanded by more than expected during the first quarter of 2025. GDP rose by +0.4% on a quarterly basis, and +1.4% year-on-year, ahead of the 1% expected by economists. This surprise comes ahead of markets expecting a significant slowdown in the coming months. Among the major economies, Spain was the best performer. Inflation across the eurozone remain unchanged at 2.2%, while core inflation slightly rose from 2.4% to 2.6%. Similarly, inflation across the bloc is expected to come down, allowing the European Central Bank to cut rates further during the year.

In other news

  • The dollar index (DXY) strengthened back over 100 last week having weakened considerably in 2025
  • Taiwan’s economy grew by +5.4% in Q1 compared to Q1 2024 as exports were pulled forward ahead of US tariffs
  • Liberal Mark Carney won Canada’s election on anti-Trump fervour; he will lead the G7 meeting in Alberta in June

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