Global Markets Weekly Update

U.S.

Stocks rise on constructive trade headlines

U.S. equities advanced during the week, supported by several reports indicating that the ongoing trade tensions between the U.S. and China could be de-escalating. Speculation around near-term agreements with several other trading partners also appeared to be a tailwind, as were comments from President Donald Trump that appeared to walk back his recent threat to fire Federal Reserve Chair Jerome Powell. The Nasdaq Composite led returns for the major indexes in a sharp rebound from the prior week, while small- and mid-cap equities posted gains for the third consecutive week.

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. T. Rowe Price traders also observed that market activity levels and trading volumes were relatively light throughout the week, remaining below year-to-date averages.

Business activity growth hits 16-month low

In economic news, S&P Global reported its Flash Purchasing Managers’ Index (PMI) 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.

March home sales plummet amid elevated mortgage rates and affordability concerns

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. According to Lawrence Yun, NAR Chief Economist, “home buying and selling remained sluggish in March due to the affordability challenges associated with high mortgage rates.” However, Yun also noted that “with mortgage delinquencies at near-historical lows, the housing market is on solid footing.”

Consumer sentiment falls for fourth straight month

Elsewhere, the University of Michigan 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,” with consumers citing “ongoing uncertainty around trade policy and the potential for a resurgence of inflation.” Expectations for inflation in the year ahead surged to 6.5%, up from 5% in March and the highest reading since 1981.

U.S. Treasuries advance on economic growth concerns

U.S. government bonds generated modest gains as yields across most maturities, particularly longer-term yields, decreased amid rising expectations of an economic slowdown. (Bond prices and yields move in opposite directions.) Municipal bonds underperformed as seasonal weakness continued to weigh on the asset class; however, our traders noted that the sector should see some support from the upcoming May 1 cash reinvestment. Meanwhile, investment-grade corporate bonds outperformed Treasuries, while issuance in the investment-grade corporate market was in line with expectations and generally oversubscribed as investors sought out higher-quality bonds.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 2.77% higher after U.S. President Trump signaled that he is willing to reduce trade tensions with China and retracted his threats to fire Federal Reserve Chair Jerome Powell. Major European stock indexes also rose. Germany’s DAX climbed 4.89%, France’s CAC 40 Index gained 3.44%, and Italy’s FTSE MIB put on 3.80%. The UK’s FTSE 100 Index added 1.69%.

ECB’s Lane says eurozone recession unlikely

European Central Bank (ECB) 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.

German government cuts growth forecast; Nagel says recession possible

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.

Eurozone business activity dips but still stable

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.

UK retail sales post surprise gain; consumer sentiment falls

Retail sales volumes in the UK unexpectedly rose in March by a seasonally adjusted 0.4%, compared with a downwardly revised 0.7% in February, official data showed. Economists polled by Bloomberg had projected a decline of 0.4%. However, rising energy bills and volatile financial markets depressed consumer confidence in April, according to research firm GfK. Separately, the IMF reduced its estimate for UK economic growth in 2025 to 1.1% from 1.6%.

Japan

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 normalization 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. The acceleration was attributed to food price hikes and a reduction in government subsidies to curb electricity and gas bills. BoJ Governor Kazuo Ueda reiterated the bank’s stance that it will raise rates if underlying inflation converges toward its 2% target and that it will continue to scrutinize whether the economy moves in line with its forecasts given uncertainty about U.S. tariff impacts.

With bilateral trade discussions between Japan and the U.S. ongoing, Japan’s government announced a package of emergency economic relief measures—including support for corporate financing and steps to stimulate consumption—to ease the impact of the higher U.S. tariffs on Japan’s economy. While pushing for the U.S. to review its trade policy, Japan has, to date, not received exemptions under the current tariff regime. Prime Minister Shigeru Ishiba highlighted that domestic industries such as automobiles and steel could be substantially hurt by the levies.

China

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 in unleashing economic aid.

Though China in recent years has been careful about overdoing stimulus and reflating credit, T. Rowe Price sovereign analyst Chris Kushlis believes it could provide fiscal stimulus in stages this year as it assesses the economic costs of tariffs. While a trade war with the U.S. would likely deliver a shock to Chinese exports and economic confidence, Kushlis noted that the central government should have the financial capacity to reduce their impact.

Other Key Markets

India and Pakistan

Tensions rise following terrorist attack in Kashmir

On Tuesday, a terrorist attack in the India-controlled portion of the Kashmir region claimed the lives of 26 tourists. In the aftermath of the attack, India declared that the Indus Waters Treaty, which governs the distribution of Indus River water between India and Pakistan, is held in “abeyance.” This gives India more options on how to use the Indus waters. It can choose to stop sharing water flow data with Pakistan, and it can create more dams and lakes to divert the water to other parts of the country. Importantly, it is not about shutting down the water supply in any way. Other responses from the Indian government—which are along standard diplomatic lines, as opposed to a direct military response—include expelling certain Pakistani personnel, canceling visa schemes, and shutting down one border post. Pakistan responded with its own measures, including the expulsion of some Indian diplomats and the closure of Pakistani airspace to Indian aircraft.

T. Rowe Price credit analyst Shaoyu Guo does not believe it is in either country’s interest to escalate the situation at this juncture, with Pakistan focusing on implementing fiscal austerity under an IMF program in the coming years, and India currently busy with U.S. trade negotiations. For the moment, Guo believes both India and Pakistan are acting in a well-choreographed manner, with de-escalation as the preferred course of action.

Türkiye (Turkey)

Disinflation continues amid “proactive” monetary policy and improved policy transmission

Turkish central bank Governor Fatih Karahan and Finance Minister Mehmet Simsek traveled to the U.S. this week to attend World Bank and IMF annual meetings. On Wednesday, they met with U.S. Treasury Secretary Scott Bessent to discuss Türkiye’s economic situation, as well as efforts to increase bilateral cooperation, particularly regarding regional matters in the Middle East.

During the visit to the U.S., Simsek gave a presentation on Türkiye’s monetary policy and inflation outlook. He characterized monetary policy as being “proactive” and claimed that policy transmission has improved “considerably” over the last year, thanks in part to “active liquidity management.” While the disinflation process is continuing—with declining services inflation becoming “more evident”—and while the pass-through of inflation from currency exchange fluctuations has been “modest,” Simsek acknowledged that risks remain “alive” due in part to uncertainty about global economies, capital flows, and commodity prices.

He concluded his presentation with a reiteration of policymakers’ beliefs as expressed in recent central bank post-meeting statements. For example, he indicated that the “decisiveness” regarding a tight monetary stance “is strengthening the disinflation process through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations.” Also, Simsek affirmed policymakers’ intention to maintain a tight monetary stance “until price stability is achieved via a sustained decline in inflation.” In addition, he asserted that central bank officials will tighten monetary policy if they foresee “a significant and persistent deterioration in inflation.”