Global markets weekly update

Equity markets rallied, buoyed by strong corporate earnings. As of May 7, about 85% of the S&P 500 Index had reported quarterly results. Data from FactSet indicated that a little less than 85% of these companies announced earnings that topped the consensus estimate. In aggregate, the magnitude of the positive earnings surprise was about 19%. Within the S&P 500 Index, information technology led the way, lifted by encouraging news flow for companies exposed to artificial intelligence (AI) infrastructure and consumption. The energy and utilities sectors, however, lost ground.

New claims for unemployment benefits came in at 200,000 for the week ended May 2, compared with 190,000 in the preceding seven-day period. This reading was below a consensus estimate for 205,000 new applications. Continuing claims—or the number of people receiving jobless benefits—slipped to 1.77 million, the lowest level since 2024.

Nonfarm payrolls in April increased for the second consecutive month. The U.S. economy added 115,000 jobs, topping a consensus estimate for 62,000. Job gains in health care, transportation and warehousing, and retail were notable drivers. Payroll growth for March, meanwhile, was revised higher to 185,000 from the previous estimate of 178,000. All told, this marked the strongest two-month period for nonfarm payroll increases since 2024. The unemployment rate remained at 4.3%. However, the percentage of people working or seeking work fell to the lowest level since October 2021.

Monthly data from Challenger, Gray & Christmas indicated that layoffs increased 38% sequentially in April but declined 21% year over year. Information technology companies announced the most job cuts, with many attributing the reductions in force to AI.

The latest data from the Bureau of Labor Statistics showed that U.S. labor productivity gains, measured by nonfarm employee output per hour, slowed in the first quarter to a seasonally adjusted annualized rate of 0.8%, compared with the 1.6% increase logged in the final three months of 2024. Year over year, labor productivity increased by 2.9%.

Census Bureau data indicated that U.S. construction spending rebounded by 0.6% in March after declining 0.2% month over month in February. New single-family housing projects were an area of strength.

A separate Census Bureau report indicated that new orders for goods from U.S. factories increased 1.5% sequentially in March after growing 0.3% in February. Surging demand for electronic products was a key driver, reflecting the ongoing build-out of AI infrastructure.

The University of Michigan’s consumer sentiment index tumbled to 48.2 in early May, its lowest reading on record. An accompanying press release indicated that roughly one-third of survey participants mentioned higher gasoline prices and about 30% cited tariffs in their responses.

The pan-European STOXX Europe 600 Index ended a volatile week with modest gains in local currency terms. Across the region, sentiment improved early in the week on easing geopolitical tensions in the Middle East and generally strong corporate earnings results. However, U.S. President Donald Trump’s threat to put “much higher” tariffs on the EU if the bloc does not reduce its tariffs on U.S. goods to zero pressured markets toward the end of the week. Among major stock indexes, Germany’s DAX inched up 0.19%, and Italy’s FTSE MIB rose 2.16%. France’s CAC 40 Index was little changed. The London Stock Exchange was closed on May 4 in observance of Easter Monday. The UK’s FTSE 100 Index fell 1.26% over the week.

The European Central Bank (ECB) is likely to raise interest rates at its next meeting, according to comments from Joachim Nagel, president of the Deutsche Bundesbank and a member of the eurozone’s central bank. He remarked that the ECB must be prepared to act again unless it sees “a substantial and sustained improvement in the inflation outlook.”

Eurozone producer price inflation accelerated in March, up 3.4% month on month and 2.1% year over year, according to Eurostat, the official statistical office of the EU. This represents the biggest monthly increase since August 2022. Sharply higher energy prices drove most of the rise.

March saw a 5.0% surge in factory orders in Germany. This was significantly higher than both the 1.0% increase that had been expected and the 1.4% uptick recorded in February. Growth was broad-based and included electrical equipment, data processing equipment, and mechanical engineering goods. Conversely, German construction activity fell sharply in April, with the S&P Global Germany Construction Purchasing Managers’ Index (PMI) falling to 42.1, its lowest level since last March.

After falling 0.9% in February, industrial production in Spain rose by 1.8% year over year in March. This marked the first expansion since November and was driven by consumer goods.

The S&P Global UK Composite PMI came in at 52.6 in April, up from its March reading of 50.3. (PMI readings greater than 50 indicate an expansion.) The uptick reflected improvement in both the manufacturing output and services activity.

Japan’s equity markets were closed Monday through Wednesday for the Golden Week holiday. In the shortened trading week, the Nikkei 225 Index surged 5.38%, reaching a record high on Thursday, while the broader TOPIX Index advanced 2.70%. Gains were led by a sharp rally in technology and semiconductor shares, supported by continued enthusiasm around AI-related demand and optimism that a potential U.S.-Iran diplomatic breakthrough could ease geopolitical tensions.

Falling oil prices helped to alleviate concerns about energy costs and supply disruptions for Japan’s economy, which relies heavily on crude oil imports from the Middle East. Against this backdrop, the yield on the 10-year Japanese government bond eased from a near three-decade high, falling to 2.48% from 2.50% at the end of the previous week, amid a broader decline in global bond yields.

The yen was volatile amid speculation about fresh foreign exchange intervention by Japanese authorities to stem further weakness in the currency during the Golden Week holiday. Nevertheless, the Japanese currency ended the week little changed relative to the U.S. dollar. Currency movements remain closely monitored by policymakers given the impact of yen weakness on imported inflation and household purchasing power.

On the economic data front, inflation-adjusted wages rose 1.0% year over year in March. Although the reading was below consensus expectations of 1.8% and February’s 2.0% increase, it marked the first time since 2021 that real wages have risen for three consecutive months. The trend suggests that nominal wage growth is increasingly outpacing inflation, adding to evidence that Japan may be establishing a more durable wage-price cycle and reinforcing the case for the Bank of Japan to continue the gradual normalization of monetary policy.

Chinese equities advanced during the holiday-shortened week as mainland markets reopened following the May 1–5 break. The CSI 300 Index rose 1.34% for the week, while the Shanghai Composite Index gained 1.65% in local currency terms, according to FactSet. Hong Kong equities also strengthened, with the Hang Seng Index rising 2.39%, led by technology and select consumer-related shares. Markets were further supported by signs of resilient domestic demand and hopes that Washington and Beijing would focus on maintaining near-term stability in bilateral trade relations.

China’s services activity expanded at a faster-than-expected pace in April, a private sector survey showed. The RatingDog China General Services PMI rose to 52.6 from 52.1 in March, while the composite PMI output index increased to 53.1 from 51.5. S&P Global said the improvement was driven mainly by stronger domestic demand and faster new business growth, although export orders declined for a second consecutive month. The data suggested that domestic activity remained relatively resilient despite ongoing tariff uncertainty and softer external demand.

Ahead of the planned May 14–15 meeting between Trump and President Xi Jinping in Beijing, U.S. and Chinese officials reportedly intensified discussions on extending the current trade truce and exploring potential agreements related to agricultural purchases, AI safeguards, and supply chain resilience. Markets interpreted the ongoing preparations as a signal that both sides remain focused on preventing renewed escalation in tariffs and export restrictions, despite persistent tensions surrounding Taiwan, technology controls, and broader geopolitical issues. Expectations for continued dialogue on semiconductors and rare earth supply chains helped support broader Asia risk sentiment and Hong Kong technology shares during the week. However, officials on both sides cautioned that the likelihood of a major breakthrough remains limited.

According to the Ministry of Culture and Tourism, domestic trips during the May 1–5 holiday rose 3.6% year over year. Total domestic tourism spending increased 2.9% from a year earlier to RMB 185.5 billion. However, spending per trip declined modestly to RMB 571 from RMB 574.1 a year earlier, based on Reuters calculations using official data. The divergence between travel volumes and per-trip spending suggests that consumers remain cautious on discretionary expenditures despite stable travel demand.

Romania’s markets were driven this week by political turmoil after Parliament voted to remove Prime Minister Ilie Bolojan’s government. Investors initially reacted by selling the Romanian currency, the leu, which fell to record lows against the euro, reflecting concerns about fiscal discipline, government stability, and access to EU funding. However, the broader market response was more balanced than many feared. Romanian stocks rebounded strongly by the end of the week, especially large banks and energy companies. Government bond yields declined from pre-crisis levels on expectations that Romania is likely to maintain overall economic policy continuity despite the political disruption.

Several economic developments helped calm markets. Romania’s Finance Ministry reported that the country’s first-quarter budget deficit came in better than expected, indicating that fiscal consolidation efforts were starting to improve before the government collapse. The government also launched a new retail bond program, offering tax-free yields to local savers, which signaled continued access to domestic funding. At the same time, Romania’s central bank reported a decline in foreign exchange reserves, reminding investors that authorities may face increasing pressure if the leu remains weak.

Banco de la República’s decision last week to keep its policy rate unchanged at 11.25% surprised investors, particularly given persistent inflation pressures and market expectations for additional tightening. Subsequent communications from the central bank maintained a hawkish tone, with policymakers emphasizing that inflation remained elevated and highlighting ongoing risks related to exchange rates, regulated prices, wage pressures, and fiscal conditions. Inflation in March stood at 5.6%, with core inflation at 5.8%. Meanwhile, the central bank’s updated forecasts projected that inflation would remain above its 3% target through 2026. Against this backdrop, investors reassessed the outlook for monetary policy, reducing expectations for near-term easing.

Market performance reflected the shift in sentiment. At the same time, political and fiscal developments added another layer of uncertainty ahead of the May 31 presidential election. Reports regarding pressure on fiscal institutions and weaker-than-expected tax collection reinforced investor concerns around fiscal credibility and medium-term policy stability.