The rebound in equity markets resumed last week, with global equities ending up 4.0% in local currency terms and 3.4% in sterling terms. However, markets remained very volatile with the US falling over 2% on Monday, only to recover its losses on Tuesday.
The volatility was not confined to equities. The gold price reached as high as $3500/oz at the start of the week, only to end down 1% at $3270. Bonds had a rather quieter time with UK gilt and US Treasury yields both ending the week a little lower, leading to gains of 0.6% or so.
With all the volatility, it’s easy to lose perspective on where we stand. So, here’s a quick round-up. Global equities are now up 10% from their 8 April low in local currency terms. However, the recovery of the pound against the weak dollar to $1.33 has limited the gain in sterling terms to 6%.
Global equities are down 8% and 11% in local currency and sterling terms respectively from their mid-February high and are back to their levels of last summer. The declines have been led by the US which is down 15% from its high in sterling terms versus a 5% drop for the rest of the world. As for bonds, as was the hope, they have provided some protection from these falls with UK gilts and US Treasuries returning 1.5-2% since equities peaked.
Back now to the here and now. What was behind last week’s moves? As has been the case for a while, the macro and corporate earnings data took a backseat. Instead, the Fed or rather the renewed attacks on it by President Trump were centre stage.
Rather than just railing against the Fed’s failure to cut interest rates, Trump talked of removing Chair Powell before his term ends next May. This provoked consternation in the markets – even though his ability to carry the threat out was questionable – only then for him to then say he had no such intention.
Once again, as with the announcement earlier of a 90-day negotiation period before reciprocal tariffs above 10% would be introduced, the market reaction appears to have forced the Administration to retreat from some of its most egregious proposals.
Hopes also grew that the US and China would find a way to back down from the current 145% tariff imposed on each other. But as ever, the picture was confused. US Treasury Secretary Bessent said these tariffs were unsustainable and Trump said talks with China were already underway. Only for China then to say this was untrue and it would not enter negotiations until the US removed its tariffs.
On the macro front, global business confidence unsurprisingly dropped in April. Sentiment remained in expansion territory in the US and Eurozone but dropped into recession territory in the UK. However, the gloom here was counterbalanced by the news that UK retail sales in March built on their large February gain, rather than unwind some of it as had been expected. Discussions of a UK-US trade deal also appear to be making progress.
Meanwhile, the US first quarter reporting season has continued in the background and in normal times would provide some reassurance. Earnings are beating expectations and look set to post a robust 10% gain on a year earlier.
The recent bounce in equities does not change our view that further turbulence remains likely over coming months, as a result of continuing uncertainty over policy and the impact on the economy, before markets are able to see a sustained upturn.
This week, tariffs will remain centre stage but will be given a run for their money by the macro and earnings data. First quarter GDP numbers for the US and Eurozone on Wednesday, along with April US payrolls on Friday, will be examined closely for clues as to the extent of the slowdown now underway. Earnings numbers for Microsoft and Meta on Wednesday and Apple and Amazon on Thursday will also be important given the Magnificent Seven have been at the forefront of the equity sell-off.
Rupert Thompson – Chief Economist