Market Commentary 27th May 2025 – from Charlie Hancock

UK economic data was mixed. Retail sales rose by 5.0% in April in comparison to the same period in 2024, which was significantly better than expected. Meanwhile, headline consumer price inflation rose to a higher than expected 3.5% year-on-year in April. This marked the highest rate of inflation recorded since January 2024, with higher energy costs being a significant contributing factor.

A Purchasing Managers’ Index (PMI) showed that business activity in the UK contracted during May, although the downturn was less pronounced than April’s. The services sector saw a small expansion during the month, however, this was offset by a relatively sharp decline in manufacturing activity.

PMI data for the Eurozone showed an unexpected decline in activity during May, with notable weakness in the services sector. Business activity in Germany slipped into contraction for the first time in 2025, with both the services and manufacturing sectors weakening. Activity in France shrank for the ninth consecutive month.

Revised economic growth data showed that the German economy expanded by 0.4% in the first quarter, with output rebounding from the 0.2% decline during the final quarter of 2024. The European Commission reduced their forecast for 2025 Eurozone economic growth to 0.9% from the previous estimate of 1.3%, citing rising uncertainty around US trade policy.

US equities sold off during Friday’s session after President Trump announced plans to impose a 50% tariff on imports from the European Union (EU) with effect from 1^st June. Trump indicated that progress regarding a revised US-EU trade deal was slow, stating that trade talks were “going nowhere”.

PMI data indicated that business activity in the US expanded by more than expected during May, with both the services and manufacturing sectors experiencing growth. Sentiment amongst firms improved during the month, with businesses less concerned about trade policy following Trump’s announcement of a pause on additional tariffs. On a less positive note, firms reported rising input cost inflation, with supply chain issues worsening.

The People’s Bank of China reduced key lending benchmark rates for the first time in 7 months last week, after several major state-owned banks cut their deposit rates. The interest rate cuts came as data showed that new bank lending declined by more than expected in April. Retail sales growth slowed during April, while fixed asset investment came in weaker than expected. On a more positive note, industrial output in April was stronger than expected.

Data in Japan showed that headline consumer price inflation remained unchanged at 3.6% year-on-year in April. Core inflation accelerated, which was interpreted as a sign of broadening inflationary pressures across the Japanese economy. PMI data showed that the manufacturing sector continued to experience declining activity in May, while the services sector continued to expand, albeit with growth slowing from the level recorded for April.

Bond yields moved higher in most developed markets around the globe, with hotter than expected inflation prints contributing to the rise in borrowing costs.

Data pointing to slower economic growth in the Eurozone appeared to contribute to government bond yields moving lower.

Concerns around the inflationary impact of US tariffs contributed to treasury yields rising, with PMI data indicating that input cost inflation accelerated during May.

GBP / EUR – Current 1.1909 Previous 1.1898

The Pound gained 1.91% against the US Dollar last week, with the Dollar weakening against most major currencies. Against the Euro, the Pound moved marginally higher (+0.09%).