Market Commentary 6th May 2025 – from Charlie Hancock

A business sentiment survey conducted by Lloyds Bank showed that sentiment deteriorated sharply during April. Firms cited uncertainty regarding the impact of US tariffs and higher employment costs, following the recent increase in employer’s National Insurance contributions.

Mortgage lender Nationwide stated that the average UK house price declined by 0.6% in April, with demand from first time buyers reportedly slowing following a £125,000 reduction in the 0% stamp duty threshold.

Official data showed that the Eurozone economy expanded by 0.4% in the first quarter of the year, which was significantly better than expected. The data contributed to hopes that the Eurozone economy will be able to avoid a recession despite the potential negative impact of US tariffs. Growth accelerated from the final quarter of 2024 and all nations except Hungary saw their economies expand. Spain and Italy experienced strong growth, while Germany and France saw marginal growth during the quarter.

Headline inflation in the Eurozone remained unchanged at 2.2% year-on-year in April, which was higher than expected. Core inflation, which excludes food and energy prices, accelerated to 2.7% from the 2.4% recorded for March.

Newsflow around trade negotiations appeared to prompt an improvement in investor sentiment during the week. President Donald Trump announced that some of the previously announced tariffs on cars and car parts would be eased. The Trump administration was reportedly close to finalising a new trade agreement with India, while officials in China also suggested that dialogue was taking place with the US.

Economic data was mixed. The official payroll report for April showed that the US economy added 177,000 jobs during the month, which was better than expected, however, job openings declined by 300,000 in March, suggesting that demand for new employees declined relatively sharply. Meanwhile, Gross Domestic Product (GDP) data showed that the US economy contracted at an annualised rate of 0.3% during the first quarter of 2025, marking the first negative quarter since 2022.

The Commerce Ministry in China stated that it was considering holding trade talks with the Trump administration. China also reportedly exempted some US imports from tariffs, including pharmaceuticals and industrial chemicals. Economic data suggested that the US-China trade war impacted manufacturing activity in April, with a Purchasing Managers’ Index (PMI) falling by more than expected. It is widely expected that the government will continue to look at fiscal stimulus efforts to support the economy given the potential negative impact of the trade dispute with the US.

The Bank of Japan (BoJ) kept interest rates on hold following their policy meeting, with the key policy rate remaining at 0.50%. The central bank revised their forecasts for economic growth and inflation lower. The BoJ’s governor, Kazuo Ueda, said that uncertainty around the outlook for growth was the main driver for keeping rates on hold, but indicated that the central bank is still planning to hike rates this year. US-Japan trade negotiations continued last week, with the Japanese Prime Minister Shigeru Ishiba stating that both sides were “searching for common ground”.

Yields drifted lower last week, before Friday’s stronger than expected payroll report for April prompted yields to move higher as investors reduced their expectations for the Federal Reserve to cut interest rates.

GBP / EUR – Current 1.1745 Previous 1.1714

The Pound declined by 0.32% against the US Dollar, with the Dollar moving higher against most major currencies. Against the Euro, the Pound rose by 0.26%.