Treasury yields rose and equities were mixed. The dollar strengthened, oil and gold climbed, and Bitcoin surged past $100,000 amid shifting global capital and supply dynamics.

Treasury yields climbed across the board this week, highlighting a divergence from equity market trends. The U.S. Treasury yield curve has steepened sharply, with the spread between 10-year and 2-year yields remaining positive for over six months. Historically, such a steepening has often preceded recessions, suggesting that despite market optimism in other areas, fixed income markets may be signalling underlying economic concerns.

U.S. equity markets had a mixed week. Small-cap stocks posted a modest gain of 0.16%, while mid-caps rose nearly 0.50%. Large-cap stocks, however, declined by 0.47%, and the “Magnificent 7” slipped 0.30%. Sector performance was uneven, with healthcare falling sharply by 4.22%, while industrials rose just over 1%. Foreign investors continue to hold significant U.S. assets—$16 trillion in equities (18% of the market), $8.5 trillion in Treasuries (33%), and $4.4 trillion in corporate bonds (27%). Although reallocations happen slowly, a trend toward diversification away from U.S. assets is emerging. With U.S. equities comprising 64% of global market capitalization—well above the 2020s average of 60% and the 25-year average of 50%—even slight shifts in allocation could significantly benefit international markets.

The U.S. dollar extended its gains for a third consecutive week, appreciating 0.48% against the euro amid ongoing inflation concerns. WTI crude oil surged 4.54%, driven by falling inventories, reduced production, geopolitical instability, and shifting energy policies—all contributing to tightening supply conditions. Gold prices rose by 2.49%, and Bitcoin jumped 9.39%, surpassing the $100,000 threshold.

The US Fed holds rates steady amid inflation concerns. The services sector expands for the 10th month, supported by strong domestic demand, despite inflation, trade weakness, and policy uncertainty.

The US Federal Reserve held interest rates steady at 4.25-4.50%, taking a cautious approach amid rising inflation and economic uncertainty. While the economy continues to expand, with solid GDP growth and a stable labour market, inflation remains above the 2% target. The Fed warned of higher risks of inflation and unemployment, raising concerns about stagflation. Although private spending remains strong, and the unemployment rate holds at 4.2%, trade disruptions and tariff concerns contribute to inflationary pressures. Chairman Powell emphasised the Fed's focus on long-term inflation stability and its ability to act swiftly if needed. The Fed is expected to maintain a flexible stance, with market expectations for potential rate cuts in September. Meanwhile, the services sector expanded for the tenth consecutive month, driven by strong domestic demand, despite inflation, weak trade, and policy-related challenges. While inflationary pressures continue, the sector's outlook remains cautiously optimistic.

The Fed holds rates at 4.25-4.50%, warning of rising inflation and unemployment risks. The market expects potential rate cuts in September, with a cautious, flexible approach.

The Federal Reserve decided to keep the federal funds target rate unchanged at 4.25-4.50%, adopting a "wait and see" approach amid growing economic uncertainty. While the U.S. economy continues to expand at a solid pace, with positive GDP growth and resilient labour market conditions, inflation remains elevated, well above the Fed’s 2% target. The decline in GDP during the first quarter was primarily due to an unusual fluctuation in trade, particularly in imports, but Powell has stated that the Fed looks at the broader economic picture and remains less concerned by this short-term disruption. Despite these challenges, private spending remains strong, rising 3% in the first quarter, and the labour market remains robust, with an unemployment rate stable at 4.2%. However, the Fed issued a cautionary warning, stating, “the risks of higher unemployment and higher inflation have risen,” raising concerns about the potential for stagflation—where growth stagnates while inflation rises. The Fed also acknowledged trade disruptions and potential tariff increases as contributing factors to ongoing inflationary pressures.

Chairman Powell emphasised the Fed's commitment to anchoring long-term inflation expectations and ensuring that temporary price increases do not evolve into persistent inflation. The Fed's cautious approach is likely to persist through the summer, with market expectations suggesting potential rate cuts starting in September, possibly amounting to a 50 basis point reduction, as seen in 2024. The central bank is closely monitoring shelter-related disinflation, particularly in the rental market, which may provide room for future policy adjustments. Additionally, the Fed continues its gradual balance sheet tapering, reducing Treasury roll-offs to $5 billion per month, while allowing maturing MBS bonds to roll off without reinvestment. Powell reiterated the Fed's flexibility to act swiftly should economic conditions change, while underscoring the central bank’s independence from political pressures and reaffirming its dual mandate to stabilise prices and support maximum employment.

About Trump: "What Trump says doesn't impact how we do our job," emphasizing the Fed’s independence. He added, "I haven’t requested any meeting with the president, nor would it be appropriate," making it clear the Fed stays out of politics.

We expect no rate cuts until at least the end of the year, as the economy remains resilient. Furthermore, inflationary pressures are expected to rise due to tariffs imposed by the Trump administration, adding further uncertainty to the economic outlook.

The US services sector grew for a tenth month in April, driven by domestic demand, despite inflation, weak trade, and policy-related pressures affecting performance.

In April 2025, the US services sector marked its tenth consecutive month of expansion, with the Services PMI rising to 51.6. Although still indicating growth, this figure remains below the 12-month average of 52.6. Broader economic activity has now expanded in 56 of the past 59 months since the onset of the pandemic, with the April data corresponding to an estimated 1% annualised increase in real GDP. Business activity eased to 53.7, suggesting a more measured pace, while new orders rose to 52.3, reflecting continued resilience in demand. Inventories increased significantly to 53.4, as firms positioned themselves ahead of anticipated tariff-related cost pressures. Employment remained in contraction at 49.0 but improved from March, indicating a possible stabilisation. The Prices Index surged to 65.1, its highest level since January 2023, pointing to mounting inflationary pressures, with 17 of 18 industries reporting price increases. Tariff concerns are now materially influencing pricing, sourcing, and inventory strategies, while federal budget cuts are constraining growth in sectors tied to public funding. Supplier deliveries improved modestly to 51.3, and backlogs edged up to 48.0, suggesting some easing in supply chain pressures. However, international exposure remains subdued, with new export orders at 48.6 and imports falling sharply to 44.3, reflecting persistent weakness in global demand. Sector performance remains uneven: eleven industries—including health care, retail trade, and information—expanded, while six, notably finance, construction, and public administration, contracted. The overall outlook remains one of cautious optimism, underpinned by steady domestic demand but tempered by inflation risks, policy uncertainty, and external vulnerabilities.

We expect the services sector to continue expanding moderately, supported by resilient domestic demand, though inflation due to tariffs imposed by Trump, trade weakness, and policy uncertainties may temper future momentum.