Bonds rose as inflation concerns grew; equities rallied broadly, led by tech. The dollar strengthened slightly, oil and gold declined, while Bitcoin posted strong gains.

Bond prices advanced over the week as risk premiums declined. Long-term bond yields suggest that markets continue to anticipate persistent inflationary pressures. Concerns over inflation, fuelled by the ongoing trade war and heightened recession fears, have unsettled investors. The US yield curve continued to steepen, reflecting growing scepticism toward US assets. The 2s/10s yield spread widened to 55 basis points, having touched 69 basis points during the week — the highest level since 2022.

Equity markets staged a strong rally. Large-cap stocks gained 4.60%, while micro- and small-cap stocks rose by 5.52% and 4.10%, respectively. The "Magnificent 7" surged by 9.44%, helping the Nasdaq finish the week up 6.43%. Gains were broad-based across sectors, with the exception of consumer staples. Technology led sector performance with an 8.10% increase, followed closely by consumer discretionary, up 6.60%.

In currency markets, the US dollar appreciated marginally by 0.17% against the euro, rebounding modestly after three consecutive weeks of decline. In commodities, WTI crude oil prices fell nearly 2%, weighed down by uncertainty over tariffs and speculation that OPEC+ may accelerate production increases at its June meeting. Gold edged down 0.33%, while Bitcoin posted a strong weekly gain of 7.88%.

U.S. economic momentum softened as manufacturing diverged from services, inflation rose, sentiment plunged, and housing and durable goods reflected mixed signals amid policy uncertainty.

April economic data signalled a mixed U.S. outlook. Manufacturing showed modest improvement, with the PMI rising to 50.7, while services weakened significantly, pulling the Composite PMI to a four-month low of 51.2. Business sentiment deteriorated for a third consecutive month, and employment gains softened amid elevated policy uncertainty. Inflationary pressures intensified, driven by rising input costs, tariffs, and labour expenses. In housing, new home sales rose 7.4% in March, supported by resilient demand despite affordability constraints, while existing home sales declined 5.9%, with prices reaching new highs and inventory levels increasing. Durable goods orders surged 9.2%, largely due to pre-tariff purchases, though core capital goods shipments declined, signalling softness in business investment. Consumer sentiment fell 8%, extending a 32% decline since January—the sharpest three-month drop since 1990—reflecting concerns about inflation, income growth, and labour markets. Looking ahead, sustained cost pressures, policy uncertainty, and weakening confidence are expected to weigh on growth, with inflation expectations rising to their highest level since 1981.

U.S. manufacturing improved in April, but services weakened. Business sentiment, employment, and confidence fell, while inflation pressures rose sharply due to costs, tariffs, and uncertainty.

In April, U.S. economic data painted a mixed picture: manufacturing showed signs of improvement while services weakened notably. The Manufacturing PMI rose to 50.7, beating expectations of 49.0 and up from 50.2 in March, suggesting modest expansion. However, the Services PMI dropped to 51.4 (from 54.4 prior), and the Composite PMI fell to 51.2—the lowest since December 2023—highlighting a sharp slowdown in business activity at the start of Q2. Underlying data revealed that overall output growth was the weakest in four months, with manufacturing stagnating amid trade tariffs, supply chain disruptions, economic uncertainty, and falling exports. The service sector’s growth was similarly hampered, particularly by subdued foreign demand in travel and tourism. Business sentiment deteriorated for a third consecutive month, hitting its lowest level since July 2022, with firms citing policy-related uncertainty as a key concern. While factory optimism was slightly more resilient - bolstered by hopes for favourable policy impacts - confidence still dropped to its lowest since August. Employment grew modestly for the fourth time in five months, but gains were softer, with manufacturing shedding jobs for the first time since October. Meanwhile, inflation pressures intensified, with prices for goods and services rising at the fastest rate in over a year, driven by elevated input costs, tariffs, and labour expenses.

We expect that this divergence between manufacturing and services will persist in the near term, with elevated costs and policy uncertainty continuing to weigh on overall economic momentum.

U.S. new home sales surged 7.4% in March, while existing home sales declined. Affordability challenges persist, but demand remains strong despite inventory constraints and rising costs.

New home sales saw a robust increase of 7.4% in March, reaching a seasonally adjusted annual rate of 724,000 units. This figure significantly exceeded market expectations of 680,000 and represents the strongest pace since April 2024. On a year-over-year basis, sales were up by 6.0%. Regional performance varied: sales grew in the Midwest and South, while the West saw a modest decline, and the Northeast experienced a sharp drop. The median sales price decreased to $403,600, marking a 1.9% decline from February and a 7.5% decrease from the previous year, reaching its lowest level in over a year. This suggests potential improvements in affordability. The supply of new homes slightly eased to 8.3 months from 8.9 months in February, despite an overall increase in inventory. Meanwhile, building permit activity was revised downward, with March permits adjusted from 1.482 million to 1.467 million, and the estimated monthly increase revised from 1.6% to just 0.5%, indicating a potential slowdown in future construction activity.

Existing home sales in March declined by 5.9% MoM—well below the expected 3.1% drop—marking the weakest performance for the month since 2020 and contributing to a 2.4% YoY decline. Despite this slowdown, the median home price rose 2.7% YoY to a record $403,700, highlighting resilient demand. Inventory surged 19.8%, the highest March increase since 2020, offering some relief in supply. Yet, competition remains firm: 21% of homes sold above list price, and 26% of transactions were all-cash. Homebuilders are attempting to meet demand, with newly built home sales up 7% MoM, even as they face rising input costs and labour shortages. Mortgage delinquencies remain historically low, and purchase applications have climbed 4.3% year-to-date, though affordability pressures continue to weigh on prospective buyers.

We expect that the housing market will face ongoing challenges due to inventory constraints, labour shortages, and rising costs, and do not anticipate a short-term recovery in the sector.

U.S. durable goods orders surged 9.2%, driven by pre-tariff purchases, exceeding expectations. However, non-defense capital goods shipments fell 1.9%, indicating mixed economic conditions.

In March 2025, new orders for manufactured durable goods in the U.S. surged by 9.2% MoM, reaching $315.7 billion. This marked the third consecutive monthly increase and significantly exceeded market expectations, which had forecasted a rise of 2%. The spike was primarily driven by a surge in orders for commercial airplanes, phones, and cars, as businesses rushed to make purchases ahead of impending tariffs. Core capital goods orders, excluding defense, increased by a modest 0.1%, while core capital goods shipments rose by 0.2%. However, shipments of non-defense capital goods, which directly impact the investment portion of GDP, fell by 1.9%, marking the largest decline since October. Durable goods orders, excluding transportation, were flat at 0.0% versus expectations of a 0.3% gain, while the prior month's growth was revised down to 0.7%. Overall, despite the strong uptick in durable goods orders, the numbers suggest that the increase may be more due to businesses front-running tariffs rather than a sign of a booming economy.

We expect the surge in durable goods orders to be temporary, driven by front-running tariffs. Future growth may moderate, with potential slowdown in Q2 2025 as the impact of preemptive purchases fades.

Consumer sentiment fell sharply amid rising inflation fears, declining income expectations, and broad economic uncertainty, signalling growing consumer anxiety and potential risks to future growth.

Consumer sentiment declined for the fourth consecutive month, falling 8% from March, as consumer expectations—particularly regarding personal finances and business conditions—plummeted, resulting in a 32% drop since January, the steepest three-month decline since the 1990 recession. While the decline in current conditions was modest, expectations deteriorated across virtually all demographic groups, including differences in income, education, age, and political affiliation, reflecting broad-based concerns. Middle-income households experienced the sharpest decline, highlighting their heightened sensitivity to current economic shifts. Key drivers of the downturn included growing uncertainty around trade policy, rising costs, and fears of a potential resurgence in inflation. At the same time, views on the labour market worsened and expectations for income growth over the next year declined, casting doubt on the sustainability of consumer spending, which is vital for economic momentum. Year-ahead inflation expectations surged to 6.5% in April from 5.0% in March—the highest level since 1981—and marked the fourth consecutive month of increases of 0.5 percentage points or more, with the rise evident across all political affiliations. Although inflation expectations briefly eased following the April 9 partial pause in tariff hikes, they remained significantly elevated relative to March. Long-run inflation expectations also increased, climbing from 4.1% to 4.4%, underscoring persistent concerns about future price stability. Together, these developments point to intensifying consumer anxiety and a growing risk to the broader economic outlook.

We expect further deterioration amid rising inflation, weakening labour market confidence, and slowing income growth, as widespread uncertainty continues to weigh heavily on consumer outlook and economic momentum in the months ahead.