Written by Dominic Williams
Global equity markets posted gains last week, as investors digested a slew of macroeconomic data and geopolitical developments. The standout driver came from the US, where reciprocal tariff reductions were agreed between Washington and Beijing, marking a significant de-escalation in trade tensions.
However, the agreement is only in place for the next 90 days, and a long-term settlement is still far from guaranteed. Tariffs are import taxes that can raise costs for businesses and consumers, so their removal typically supports trade and market sentiment. The move fuelled optimism around global trade and was widely welcomed by markets, with major indices responding positively. President Trump also took a diplomatic tour to the Middle East, where he secured new trade agreements in the region.
In response, the S&P 500, a widely followed index that measures the performance of 500 leading US-listed companies, rallied sharply, rising +5.7% in GBP terms. This reversed recent losses and brought the index back into positive territory for the year in local (US dollar) terms.
US inflation data released during the week added to the positive sentiment. Headline Consumer Price Index (CPI) inflation came in at 2.3% year-on-year for April, below expectations, offering hope that inflationary pressures are easing. CPI measures the average price change paid by consumers for goods and services and is closely watched by policymakers and markets alike. However, producer price data presented a more mixed picture.
These figures reflect the costs businesses incur to produce goods and services, often called input prices. While input prices fell more than expected, this was partly due to tariff-related pressures and weak demand. Falling input costs can sometimes be positive, but in this case, they may signal that companies are cutting prices to maintain sales, or that global demand is weakening, both of which raise concerns over a potential squeeze on company profit margins.
If businesses earn less per unit sold, it could weigh on corporate profitability in the coming quarters, complicating the outlook for how the Federal Reserve may approach interest rates going forward.
While the immediate market reaction was positive, the full impact of recently proposed tariffs is yet to be felt, and policymakers have cautioned that inflation could rise again later in the year.
In the UK, GDP grew 0.2% in March, bringing first-quarter growth to 0.7%. While this was ahead of expectations, underlying indicators were less encouraging. Both industrial and manufacturing production came in below consensus, raising questions about the sustainability of the recovery in the face of continued weakness in consumer demand and elevated interest rates. UK equities saw a mixed response, with the more domestically focused FTSE 250 rising +2.4%, while the broader FTSE All Share rose +1.8% over the week.
In Japan, GDP fell by 0.2% in the first quarter of 2025, reflecting weaker than expected demand from major trading partners, compounded by concerns over the impact of US trade policies. Despite the contraction, sentiment held up relatively well over the week, supported by the broader rebound in global markets and optimism following the US-China trade deal. Market performance was muted, with the MSCI Japan Index rising +0.2% in local currency terms but declining -0.2% in GBP terms.
Despite the week’s optimism, challenges remain. The looming impact of new trade tariffs, ongoing questions around the sustainability of global growth, and mixed corporate earnings all point to a still-uncertain outlook. However, the strong market rebound, particularly in the US, serves as a timely reminder of the risks of trying to time markets. Staying invested and maintaining a diversified approach remains, as ever, the most effective way to navigate an evolving global landscape.
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All the data contained in the communication is believed to be reliable, but may be inaccurate or incomplete. Unless otherwise specified, all information is produced as of 19th May 2025.
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