Are things beginning to look a little brighter? The TPP weekend wrap

Things Look A Little Brighter - apparently.

Stocks finished higher in London on Friday, even as investors locked in profits following nine straight days of gains, driven by easing trade tensions and hopes of a rate cut by the Federal Reserve.

The FTSE 100 edged up 0.09% to close at 8,415.25, after having swung between gains and losses for most of the morning session.

The index closed at its highest since 3 April on Thursday, having surged by 9.5% over the past nine trading days alone.

The more domestic FTSE 250 added 0.54% or 105.32 points to close at 19,609.69.

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Helping recent gains were rumours that China is considering suspending its 125% retaliatory tariffs on select US imports, raising hopes that the two nations could come to a deal, while US-Japan trade talks were said to be promising.

However, reports from Xinhua News Agency early on Friday suggested that China was preparing contingency plans, such as monetary and policy tools to boost the economy amid the deepening trade war, as Beijing continues to dismiss US reports that the two sides were closing in on a trade deal.

Nevertheless, Fed rate-cut chatter has lifted sentiment in recent days after policymakers Christopher Waller and Beth Hammack both indicated that they would be happy to loosen monetary policy earlier than anticipated if economic data worsens, with market pricing for a June rate cut increasing.

"Stocks have enjoyed a much better week overall as talk of firing Powell has receded and the US strikes a more conciliatory tone with China," said Chris Beauchamp, chief market analyst at IG.

"But with so many companies warning of tougher times to come, the current bounce could be just one of those famed 'bear market rallies', which stage a huge rebound before giving way to bigger losses as bad news begins to bite."

Back on home shores, economic data out on Friday showed that UK consumer confidence softened notably in April as concerns about the health of the economy mounted. The latest GfK Consumer Confidence Barometer was -23, down four points on both March and on April 2024, and the lowest level since November 2023. Within that, all-sub measures were lower, although the sharpest falls related to the economy. Expectations for the general economic situation over the next 12 months fell eight points to -37.

Meanwhile, UK retail volumes were estimated to have risen by 0.4% in March, following a revised 0.7% increase in February, surprising economists who had pencilled in a 0.4% decline. The Office for National Statistics said much of March’s rise was driven by clothing and outdoor retailers, who reported that the warmer, sunny weather had boosted fashion and DIY sales in particular.

Transport company Mobico plunged 41% after saying annual earnings would be at the lower end of guidance. The company also announced it had sold its North America school bus business to global infrastructure investment manager I Squared Capital for up to $608m.

Precious metals miners Fresnillo, Endeavour and Hochschild fell as gold prices continued to retreat from recent record highs. Heavyweight miner Anglo American traded in the red, but Antofagasta finished the session higher.

Companies with heavy exposure to the US performed well, including building materials group CRH, gambling outfit Entain, and pest control giant Rentokil Initial.

Meanwhile, Shell edged higher on the news that it is to exit three offshore gas projects in Colombia as they no longer meet the company's "strategic ambitions". Shell, the operator in the projects, has held an equal share in the Col 5, Purple Angel and Fuerte Sur deepwater projects along with state-run Ecopetrol since December 2020.

Europe

The STOXX Europe 600 Index ended 2.77% higher with major European stock indexes also rising. Germany’s DAX climbed 4.89%, France’s CAC 40 Index gained 3.44%, and Italy’s FTSE MIB increased by 3.80%.

European Central Bank Chief Economist Philip Lane told Bloomberg News that tariff uncertainty would curb economic growth, but a recession was unlikely given the bloc’s diversified trading relationships. ECB President Christine Lagarde said in an interview with The Washington Post that she could not exclude the possibility that the central bank would revisit its growth forecasts in June when policymakers next meet.

In light of U.S. trade tariffs introduced at the beginning of April, the German government cut its gross domestic product (GDP) forecast for this year and now expects stagnation, rather than the 0.3% expansion that it projected in January. Meanwhile, Bundesbank President Joachim Nagel said at the International Monetary Fund (IMF) meeting in Washington that trade tensions would have a “significant” impact on the country’s export-led economy, which might even tip into a “slight recession.” Germany’s GDP has shrunk for the past two years.

A faster reduction in new orders and waning confidence held back business activity in the eurozone in April, according to purchasing managers’ surveys compiled by S&P Global.

The composite index that combines services and manufacturing output registered a preliminary reading of 50.1 in April, down from 50.9 in March. Levels above 50 indicate expansion. Services sector activity weakened marginally, but manufacturing shook off the U.S. tariff threat, expanding for a second consecutive month.

The U.S.

U.S. equities also advanced during the week on the back of the positive headlines about the ongoing tariff war.

On top of that some better-than-expected corporate earnings releases during the week also seemed to be a driver of positive sentiment. According to data from FactSet, 73% of the companies that had reported first-quarter results through Friday morning had beaten consensus earnings expectations.

In economic news, S&P Global reported its Flash Purchasing Managers’ Index survey data for April, which indicated that U.S. business activity growth slowed to the lowest level in 16 months. While activity in the manufacturing space unexpectedly increased from 50.2 in March to 50.7 in April, services activity growth slowed sharply, dragging the overall index down to 51.2 from 53.5 in the prior month (readings above 50 indicate expansion, while readings below 50 signal contraction).

Prices charged for goods and services increased at the fastest rate in over a year, with much of the increase attributed to the impact of tariffs. Expectations for the year fell to the lowest level since July 2022, although the decline in optimism was less pronounced in the manufacturing sector amid “hopes of positive impacts from government policies.”

Meanwhile, the Census Bureau reported that durable goods orders increased for the third consecutive month in March, rising 9.2% from February. However, the advance was mostly attributed to a sharp rise in transportation equipment orders (27%), specifically for commercial aircraft (139%), as businesses attempted to get ahead of impending tariffs. Excluding the transportation category, orders were flat month over month, potentially reflecting some apprehension among businesses amid ongoing economic and policy uncertainty.

On Thursday, the National Association of Realtors (NAR) reported that sales of previously owned U.S. homes dropped 5.9% in March, the steepest monthly drop since November 2022. The 4.02 million seasonally adjusted home sales during the month were also the lowest for March since 2009.

The University of Michigan also reported that its final Index of Consumer Sentiment reading for April was 52.2, higher than a previous estimate but still 8% lower than March. Surveys of Consumers Director Joanne Hsu noted that “expectations have fallen a precipitous 32% since January, the steepest three-month percentage decline seen since the 1990 recession,”

Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.8% and the broader TOPIX Index up 2.7%. Sentiment was supported by tentative signs of easing in global trade tensions. Amid softening demand for assets perceived as safer, the yen weakened to around the middle of the JPY 143 range against the U.S. dollar, from about 142 at the end of the previous week. The yield on the 10-year Japanese government bond rose to 1.34%, from the prior week’s 1.29%.

A hot inflation print continued to support the case for further rate hikes by the Bank of Japan (BoJ), although the central bank’s process of monetary policy normalisation is complicated by uncertainty about the economic impacts of U.S. tariff measures. Tokyo-area inflation, regarded as a leading indicator of nationwide trends, quickened at the fastest pace in two years, with the core consumer price index (CPI) rising 3.4% year on year in April, ahead of market expectations of a 3.2% increase and up from 2.4% in March.

Mainland Chinese stock markets advanced for the week amid expectations that the government will roll out more stimulus to cushion China’s economy from the impact of U.S. tariffs. The onshore benchmark CSI 300 Index added 0.46%, and the Shanghai Composite Index advanced 0.61% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index rose 2.82%.

On Friday, China’s Politburo, the ruling Communist Party’s 24-member executive policymaking body, said it would “fully prepare” emergency plans in response to external shocks. The group also said that China would set up new monetary tools and policy financing instruments to boost technology, consumption, and trade, Bloomberg reported, citing state media. Officials also pledged to go “all out to consolidate the fundamentals of economic development and social stability.”

The readout from the Politburo, which is led by Chinese President Xi Jinping, indicated that Beijing was taking a patient approach toward supporting the economy amid the U.S. trade war. Most analysts see the impact of U.S. levies on China becoming evident in the near term after the Trump administration hiked total tariffs on most Chinese goods to 145% earlier in April. But China’s better-than-expected growth in the first quarter and stimulus measures that the central government outlined in early March have afforded Beijing more time to unleash economic aid.

The Week Ahead

The coming week sees some key data releases out of the US, including GDP, the Fed's favoured core PCE price gauge, ISM and PMI data, plus non-farm payrolls. Global PMI data will also reveal how worldwide manufacturing fared in the aftermath of US tariff announcements on April 2, while central bank policy decisions are due in Japan and Thailand.

Having started the year on a wave of optimism, the US economy has since sent worrying signals. First quarter GDP numbers will provide the first major official indication of the state of play. Business surveys from ISM and S&P Global, both of which are updated for April during the week, have underscored growing concerns from business about the introduction of tariffs, with the S&P Global survey indicating annualised GDP growth of only about 1% in the first quarter. While the consensus currently stands at 0.5%, some nowcast models suggest there's a risk of contraction.

Markets will be looking in particular to see how the US administration might respond to any heightened recession risks, especially in relation to its tariffs and trade deals.

Likewise, the monthly US employment report will be eagerly anticipated on Friday (notably preceded by the JOLTS report on Wednesday, which tracks job openings) to gauge the impact of DOGE-related job cuts and the broader hiring trend. Surveys have so far hinted at sustained private sector hiring, but confidence has slumped to warrant some caution in relation to the future jobs trend. Prior data showed a consensus-beating 228k payroll rise in March, but the unemployment rate ticked up to 4.2%.

How the FOMC might react to any signs of weakening labour markets can only be gauged alongside the PCE price data to be updated during the week. Core PCE inflation, widely seen as a key gauge watched by policymakers, jumped by 0.4% in February but consensus points to a 0.1% rise in March. Any upside surprise could dampen hopes of FOMC rate cuts.

The European Central Bank will also be hoping for some benign inflation numbers for April on Friday, to keep the door open to some widely-anticipated further rate cuts in 2025, while policymakers in Canada, Mexico, mainland China and many other export-focused Asian economies will be eager to assess the April manufacturing PMI numbers for the first signs of output and export trends following the April 2nd US 'reciprocal' tariff announcements.

Enjoy the rest of your weekend and there will be more from us on Wednesday with our Midweek Trading Update.

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Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions.

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

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