Global Markets Weekly Update

U.S.

Most major U.S. stock indexes finished the week higher, with several hitting record highs, as some generally positive economic data, ongoing strength in artificial intelligence (AI)-linked stocks, and upbeat earnings results helped offset continued uncertainty surrounding the U.S.-Iran conflict. The technology-heavy Nasdaq Composite led gains, followed by the S&P 500 and Russell 2000 Indexes. The Dow Jones Industrial Average declined.

Equities began the week on a cautious note following a strong three-week rally as hopes for near-term de-escalation in the Middle East faded. However, stocks rebounded on Wednesday after a ceasefire extension helped ease concerns, although heightened geopolitical uncertainty persisted through the end of the week.

Corporate earnings were also in focus, with nearly 20% of the S&P 500 companies reporting during the week. According to data from FactSet, 84% of S&P 500 companies that had reported through Friday beat estimates, with a blended year-over-year earnings growth rate of 15.1%—on pace for a sixth consecutive quarter of double-digit growth. Investor attention largely remained centered on AI demand and related infrastructure spending, signs of resilient consumer demand, and companies’ ability to manage higher costs.. 

Retail sales rise amid surge in gas prices; consumer sentiment dips

U.S. retail sales jumped 1.7% in March, the strongest monthly increase since early 2023, driven by a 15.5% surge in sales at gas stations. Excluding gas stations, sales rose by a still healthy 0.6%, while control group sales—which feed into the gross domestic product (GDP) calculation—increased 0.7%. Readings for February and January were also revised higher, a sign that the U.S. economy may have been stronger than previously expected through the first quarter of the year. 

The University of Michigan reported that its April Index of Consumer Sentiment slipped 3.5 points from the prior month to 49.8. The reading was ahead of a preliminary estimate as sentiment improved in mid-April following the U.S.-Iran ceasefire announcement, though overall the index remained pressured and saw broad-based declines across all demographics. Expectations for inflation in the year ahead surged to 4.7%, up from 3.8% in March, while long-run expectations climbed to 3.5%, the highest level since October 2025.

Business activity improves, but price pressures rise

S&P Global’s Flash Purchasing Managers’ Index (PMI) data for April pointed to a modest rebound in U.S. business activity, although output prices rose at the fastest rate in nearly four years. The Composite PMI rose to a three-month high of 52.0, driven by a solid rise in manufacturing—where the PMI reached a nearly four-year high. Services activity also improved but remained subdued overall.

However, underlying trends were mixed. Services demand was soft, with new business growth near two-year lows, while manufacturing strength was partly driven by stock building amid supply concerns. Employment rose marginally after a slight decline in March, reflecting cautious hiring amid cost pressures and an uncertain demand environment. Inflation signals strengthened notably, with input costs and selling prices rising at their fastest pace since mid-2022 as supply delays worsened and firms passed through higher costs.

Corporate bonds outperform Treasuries

U.S. Treasuries generated negative returns as yields increased across most maturities throughout the week. (Bond prices and yields move in opposite directions.) T. Rowe Price traders noted that the market saw more muted responses to headlines surrounding the Strait of Hormuz than in recent weeks, adding that the extension of the ceasefire midweek appeared to leave investors assuming there will not be a near-term resolution. Investment-grade corporate bonds and high yield bonds also declined, although both markets held up better than Treasuries.

Europe

The pan-European STOXX Europe 600 Index ended the week down 2.54% in local currency terms. Traditionally defensive sectors such as utilities and telecoms outperformed, as the Strait of Hormuz remained largely closed and stalled negotiations between the U.S. and Iran put geopolitical risk at the forefront. Among major stock indexes, Germany’s DAX tumbled 2.32%, Italy’s FTSE MIB fell 2.48%, and France’s CAC 40 Index declined 3.17%. The UK’s FTSE 100 Index lost 2.70%.

German business confidence plunges to lowest level since the pandemic

The German Ifo Business Climate Index fell to 84.4 in April, the lowest reading since May 2020 and below market expectations of 85.5. The assessment of current conditions and future expectations both deteriorated. On an industry basis, manufacturing, trade, and construction registered some of the biggest declines in sentiment.

French consumer confidence falls sharply in April

Consumer confidence in France deteriorated by more than expected in April, according to data from INSEE, the country’s official statistics agency. The index declined to 84 from 89 in March, marking the steepest decline since the start of the war in Ukraine.

Spanish producer prices surge

Producer prices in Spain rose by 3.4% year over year in March, driven by surging energy prices. This was the largest increase in a year.

Mixed unemployment data in the UK 

The unemployment rate in the UK unexpectedly fell to 4.9% for the three months to February. This was better than market expectations that the rate would remain unchanged at 5.2%. However, the drop was driven at least in part by fewer people looking for work, as economically inactive people are not included in the data.

UK retail sales rose by 0.7% month on month in March, which was higher than a consensus estimate for a 0.3% increase. Increased fuel purchases and non-food store spending accounted for much of the gain. However, the UK GfK Consumer Confidence Index dropped to -25 in April, the largest decline in a year and the lowest level since October 2023. The index measures confidence across both personal finances and the broader UK economy. 

Japan

Japan’s stock markets generated mixed returns over the week, with the Nikkei 225 Index gaining 2.12% and the broader TOPIX Index down 1.18%. The Nikkei extended its record highs, driven by strong gains in technology and AI-related stocks, despite the outlook for the war in the Middle East remaining unclear amid stalled peace talks between the U.S. and Iran. 

Pickup in consumer inflation showed impact of war on broader economy

Japan’s latest consumer inflation print showed that the costs of the war in the Middle East began to impact the broader economy last month. The core consumer price index rose 1.8% year over year in March, accelerating from 1.6% in February and ahead of a consensus forecast of 1.7%. The pickup was driven by higher energy costs, notably gasoline prices, although government fuel subsidies helped offset these pressures.

Bank of Japan expected to adopt a “wait and see” stance

In an environment of mounting upside inflation risks, investors continued to speculate about the potential timing of the Bank of Japan’s (BoJ) next interest rate hike. Uncertainty about the impact on growth and inflation from the war in the Middle East is complicating the BoJ’s gradual monetary policy tightening process, with investors now converging around the view that the central bank will adopt a “wait and see” stance and is unlikely to raise rates at its April 27–28 meeting.

The BoJ is expected to revise upward its forecasts for inflation while downgrading its growth projections, given the significant shock from rising energy prices. Against this backdrop, the yield on the 10-year Japanese government bond rose to 2.44% from 2.41% at the end of the previous week.

Japan coordinating closely with U.S. in face of speculation-driven yen volatility

The yen weakened toward JPY 160 against the U.S. dollar. That level represents a threshold where authorities could potentially intervene in the foreign exchange markets to support the Japanese currency, having last undertaken such interventions in 2024. Japan’s Finance Minister Satsuki Katayama, in conversation with the Bloomberg news agency, again acknowledged that speculation is driving volatility in currency markets and that, for the first time, such volatility is deriving from the oil market. She said that Japanese authorities are in close contact with their U.S. counterparts, including regarding the possibility of bold action.

China

Mainland equities were broadly stable over the week, consolidating gains following the prior week’s stronger-than-expected economic data and a limited pipeline of new domestic catalysts. The onshore benchmark CSI 300 Index rose 0.86%, while the Shanghai Composite Index edged up 0.70% in local currency terms, according to FactSet. In contrast, Hong Kong equities underperformed, with the benchmark Hang Seng Index declining 0.70%. 

PBOC rate hold signals no urgency for broad easing after strong data

The People’s Bank of China (PBOC) left its benchmark lending rates unchanged for the 11th consecutive month in April, in line with expectations. The PBOC maintained the one-year loan prime rate at 3.0% and the five-year rate at 3.5%, as policymakers signaled confidence in the current growth trajectory despite lingering external risks. The move follows last week’s firm first-quarter growth data, when gross domestic product expanded 5% year over year, reducing the pressure for immediate stimulus. 

China’s Xi calls for the reopening of the Strait of Hormuz

Chinese President Xi Jinping called for an end to hostilities between the U.S., Israel, and Iran and for the reopening of the Strait of Hormuz in a phone call with Crown Prince Mohammed bin Salman of Saudi Arabia. Xi called for an “immediate and comprehensive ceasefire,” adding that China remains committed to resolving disputes through diplomatic means.

DeepSeek launches preview of new AI model

Chinese AI startup DeepSeek rolled out preview versions of its new flagship AI model during the week, a year after jolting global markets with its low-cost approach to advanced AI. The Chinese startup introduced its V4 Flash and V4 Pro series, adapted for Huawei chip technology, highlighting strong coding performance and advances in reasoning and agentic tasks. The models also feature a 1-million-token context window, enabling entire codebases or lengthy documents to be processed in a single prompt. The launch builds on last year’s R1 model, which triggered a global tech sell-off by challenging assumptions around AI cost and compute intensity. Preview versions allow the company to include real-world feedback and make changes ahead of a final product launch.

Other key markets

Romania

Political shake-up pushes government into minority status, raising uncertainty around reforms

During the week, Romania’s markets were largely driven by an escalation in political risk after the Social Democratic Party withdrew support from Prime Minister Ilie Bolojan, forcing the government into a minority position. The split stems from disagreements over austerity measures aimed at reducing the country’s large budget deficit, leaving Bolojan to govern with a smaller coalition while seeking parliamentary backing on a case-by-case basis.

Romania is under pressure to deliver fiscal reforms tied to billions of euros in European Union (EU) funding. While the government is still targeting a reduction in the budget deficit to around 6.2% of GDP this year, the shift to a minority government increases the risk of delays or dilution of reform efforts. That said, there are some signs of continuity: The departing Social Democratic Party has indicated it may still support key EU-related legislation, and early elections appear unlikely given the risk of boosting far-right opposition parties.

Near term, the situation remains fluid. Bolojan must secure a confidence vote within 45 days to stay in office, although he retains full powers in the interim unless a no-confidence motion succeeds. The government is also racing against time to pass required reforms and avoid losing up to EUR 8 billion in EU recovery funds that expire later this year.

Türkiye

Central bank holds rates as Middle East conflict lifts inflation risks

Türkiye’s central bank kept its benchmark one-week repo rate unchanged at 37% this week, in line with expectations, as policymakers grow increasingly cautious about the inflation outlook. The decision reflects rising uncertainty tied to the war in the Middle East, particularly its impact on energy prices and inflation expectations. In its statement, the central bank acknowledged that while economic activity is showing signs of slowing, recent geopolitical developments could create “secondary effects” that push inflation higher. Policymakers emphasized that they remain “highly attentive to upside risks on inflation,” signaling a more cautious stance than in prior meetings.

Importantly, the bank also indicated that underlying inflation is likely to pick up in April, and market expectations are already moving in that direction. Year-end inflation forecasts among market participants rose from 25.4% in March to 27.5% in April, largely due to uncertainty around global energy prices. Stronger language around inflation from the central bank suggests that it intends to keep financial conditions tight for longer, with short-term funding rates effectively anchored closer to 40% through liquidity management, even though the headline policy rate remains at 37%.