The turmoil dissipates (a touch) for now. The TPP weekend wrap.

The FTSE 100 Index slips -1.13% during another volatile week.

The market turmoil sparked by Trump’s tariff announcements prompted central banks in the eurozone and the UK to step up their monitoring of financial institutions and markets.

The Bank of England asked lenders for information about market liquidity and whether hedge funds and other clients were facing problems. The BoE also amended its schedule for bond sales in the second quarter in response to market volatility, delaying auctions of long-dated gilts. Meanwhile, its Financial Policy Committee warned that there could be further market corrections. It highlighted that the fragmentation of global trade and stress in financial markets could harm financial stability by depressing economic growth.

The UK economy expanded 0.5% in February, as stronger services output helped growth beat the median forecast for GDP growth of 0.1%. On a year-over-year basis, gross domestic product rose 1.4%, a growth rate that exceeded the consensus estimate. Still, financial markets expect the BoE to accelerate its rate-cutting cycle this year.

Revised data showed flat growth in January rather than the small contraction initially reported. The services sector, which grew 0.3%, was the main driver of February’s gains, while industrial production rebounded 1.5% and construction rose 0.4%, both recovering from earlier declines.

Despite the stronger economic output, UK retail activity remained subdued. Data from the British Retail Consortium and Sensormatic revealed a 5.4% year-on-year decline in footfall during March, largely due to the late timing of Easter this year compared to 2023.

High streets, shopping centres, and retail parks all reported reduced visitor numbers, though Mother’s Day provided a temporary boost to high street traffic.

“With Easter falling in April, footfall in March could not compete with last year, when families were already enjoying their Easter holidays,” said Helen Dickinson, chief executive of the British Retail Consortium.

“Despite this, footfall in retail parks held up better than other locations, as the expanding offer of hospitality and leisure outlets alongside retail, together with free parking, attracted more shoppers.

In currency markets, sterling was last up 0.62% on the dollar trading $1.3051, while it weakened 0.6% against the euro to trade at €1.1509.

Europe

The pan-European STOXX Europe 600 Index ended the week 1.92% lower as trade tensions intensified. However, markets rebounded, narrowing losses, after U.S. President Donald Trump said that he would delay the imposition of “reciprocal” tariffs for most trading partners. Major stock indexes fell. Germany’s DAX declined 1.30%, Italy’s FTSE MIB decreased 1.79%, and France’s CAC 40 Index lost 2.34%.

The European Central Bank called on banks to check on deposits and other forms of funding more frequently.

German industrial production contracted in February by 1.3% sequentially, after increasing 2% in January. Output declined in the construction, energy, and food industries. However, expansion in electrical equipment manufacturing partially offset the losses. In Italy, industrial output fell 0.9% sequentially in February and 0.7% in the December-February quarter.

ISTAT, the Italian statistics agency, also reported that the country’s economy grew 0.7% in 2024, less than the official forecast of 1.0%. The Treasury sharply reduced its projection for growth in gross domestic product (GDP) to 0.6% from a previous level of 1.2% set last September. Italy has a large trade surplus with the U.S. and would be subject to a general tariff of 20%.

The U.S.

U.S. stocks closed higher after a volatile week in which a slew of trade-related headlines continued to dominate investor sentiment. The week opened with equities sharply lower, extending losses from the prior week, as negative sentiment intensified ahead of Wednesday’s implementation of the Trump administration’s latest round of tariffs. However, on Wednesday, President Donald Trump announced that he was authorizing a 90-day pause on the higher reciprocal tariffs for most countries, effective immediately, to allow time for negotiations. The news sent stocks rocketing higher, with the Nasdaq Composite gaining over 12% and logging its second-best day on record.

Notably, however, the Trump administration excluded China from the 90-day pause, instead announcing several increases to tariffs on Chinese goods throughout the week (up to 145%), while China responded with several increases to levies on U.S. imports (up to 125%). The escalating trade war between the world’s two largest economies—and concerns about the broader impact it could have on global economic growth—appeared to dampen some of Wednesday’s positive sentiment, which led to stocks giving back some gains on Thursday.

Meanwhile, the Federal Reserve released minutes from its March policy meeting on Wednesday. According to the minutes, policymakers “generally saw increased downside risks to employment and economic growth and upside risks to inflation while indicating that high uncertainty surrounded their economic outlooks.” Meeting participants also “judged that inflation was likely to be boosted this year by the effects of higher tariffs,” and most members favored a “cautious approach” to monetary policy amid “uncertainty about the net effect of an array of government policies on the economic outlook.”

Elsewhere, the Bureau of Labor Statistics released its March consumer price index (CPI) data on Thursday, reporting that core (less food and energy) prices rose 0.1% from the prior month, the lowest reading in nine months. Year over year, core prices rose 2.8%, the smallest 12-month increase since March 2021.

The report indicated some welcome relief for consumers prior to the latest round of tariffs; however, on Friday morning, the University of Michigan reported that its Index of Consumer Sentiment’s year-ahead inflation expectations surged to 6.7% in April, the highest level since 1981, “amid growing worries about trade war developments that have oscillated over the course of the year.” The overall index reading declined for the fourth straight month to 50.8, down 11% from March and the lowest level since June 2022.

Asia

Japan’s stock markets fell over the week, with both the Nikkei 225 Index and the broader TOPIX Index down around 0.6%. The indexes plunged on Monday as the sell-off triggered by the U.S. administration’s aggressive tariffs and fears about a global trade war intensified. Japanese banks suffered some of the sharpest declines on the day.

U.S. authorities’ willingness to begin trade talks with Japan offered some respite, and later in the week, Japanese shares surged on the announcement that new tariff rates on most U.S. trading partners would be lowered to 10% for 90 days (a 24% levy had been applied on Japanese imports). Notably, the 25% tariff imposed on Japan’s automotive imports into the U.S. was not included in the reciprocal tariff pause. Japan is seeking an exemption from higher tariffs.

Mainland Chinese stock markets recorded a weekly loss, but declines were tempered by hopes that the spiraling trade war with the U.S. would lead Beijing to roll out fresh stimulus that would boost the economy. The onshore benchmark CSI 300 Index shed 2.87%, and the Shanghai Composite Index fell 3.11% in local currency terms from the prior week’s close. In Hong Kong, the benchmark Hang Seng Index slumped 8.42%. Both the CSI 300 and Shanghai Composite indices advanced for four straight trading days ended Friday following reports that top government leaders met Thursday to discuss additional stimulus to counter higher U.S. tariffs.

On Friday, China raised tariffs on U.S. goods to 125% from 84% starting April 12, a day after the Trump administration clarified that the total tariffs on China reached 145%. However, Beijing called the U.S.’s latest increase a “joke” and appeared to rule out any more increases on its part. “The U.S.’s repeated imposition of abnormally high tariffs on China has become a numbers game, which has no practical economic significance,” a Ministry of Commerce spokesperson said in comments posted on its site. “If the U.S. continues to play the numbers game of tariffs, China will ignore it.”

The Week Ahead

The week ahead sees UK and US earnings seasons both warm up, as well as some key economic data, including UK inflation and labour market data, and potential interest rate cuts.

Sainsbury's, Deliveroo, B&M, Rio Tinto, BHP Group, Barratt Redrow, Dunelm, Rentokil and DiscoverIE Group are among the UK companies reporting, while US and other international names include Netflix, ASML, LVMH, Goldman Sachs, Bank of America, Citigroup, Morgan Stanley, Johnson & Johnson and United Airlines.

Enjoy the rest of your weekend and get ready for another rollercoaster week of policy changes and tariff noise. We’ll get through this mess eventually.

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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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