The week that was …
Economic round-up
US GDP
The US economy contracted in the first three months of 2025, as imports surged ahead of presidential tariffs. Gross domestic product fell at an annualised rate of 0.3%, the country’s first quarter of negative growth since the first three months of 2022. Read more in ‘In focus’ below and from CNBC here
Eurozone growth
The eurozone economy grew 0.4% in the first three months of 2025, doubling its pace from the previous quarter and beating economists’ consensus expectations. Ireland led the way, followed by Spain, while Germany rebounded. Read more in ‘In focus’ below and from Euronews here
Eurozone inflation
Eurozone inflation surged more than expected in April, as trade tariffs began to bite. Eurostat figures showed consumer prices rising 2.2% year-on-year, unchanged from March but slightly above the consensus 2.1% forecast by economists. Read more from Euronews here
US jobs
Hiring in the US slowed in April but by marginally less than expected. Non-farm payrolls rose by 177,000, following a gain of 185,000 the previous month. Economists had forecast an increase of 138,000. Average hourly earnings rose by 0.2% month-on-month. Read more from Sharecast here
BoJ holds steady
The Bank of Japan kept interest rates steady and sharply cut its growth forecasts, blaming the hit to exports from the Trump tariffs. The central bank still projected inflation would stay roughly on course to hit its 2% target. Read more from Reuters here
US consumer sentiment
US consumer sentiment extended its decline in April, with the Conference Board’s Consumer Confidence index falling from 93.9 to 86.0 – its weakest reading since April 2020. Notably, the Expectations index, which tracks short-term outlooks for income, business activity and employment, dropped 12.9 points to 54.4 – its lowest reading since October 2011. Read more in ‘In focus’ below and from FX Street here
Markets round-up
US equity flows
US equity funds experienced their third consecutive week of outflows, fuelled by worries over economic growth and trade tensions. According to LSEG Lipper data, investors withdrew a net $15.56bn (£11.68bn) from US equity funds in the week to 30 April. Read more in ‘In focus’ below and from Reuters here
Market relief
Signs of a possible thaw in trade tensions helped push global markets higher at the end of the week after Beijing said it was evaluating a recent approach from Washington on starting trade talks. Read more from the FT here
Tesla weakness
Tesla reported a 9% slide in revenues from $21.3bn a year earlier. Automotive revenue dropped 20% to $14bn from $17.4bn in the same period last year. Read more from CNBC here
Tech earnings
Apple and Amazon reported growth in their latest quarterly results but potential trade tariffs were still weighing on both groups. Apple reported quarterly revenue of $95.1bn, up 5% year-on-year, but said tariff changes would cost the firm $900m in the next quarter. Amazon saw net income increase to $17.1bn in the first three months of 2025.
European home bias
European markets are showing an increasing home bias for investment, according to Mercer chief investment officer Olaolu Aganga, who was reporting on the finding of the latest Mercer Survey. Read more in ‘In focus’ below and from CNBC here
“To put this turbulence into context, the Vix index of US stockmarket volatility – often dubbed ‘the fear index’ – reached levels only previously witnessed at the peak of the global financial crisis and the outbreak of Covid.
Selected equity and bond markets: 25/04/25 to 02/05/25
| Market | 25/04/25 (Close) |
02/05/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4548 | 4652 | +2.3% |
| S&P500 | 5525 | 5687 | +2.9% |
| MSCI World | 3618 | 3725 | +3.0% |
| CNBC Magnificent Seven | 291 | 302 | +3.4% |
| US 10-year treasury (yield) | 4.24% | 4.31% | |
| UK 10-year gilt (yield) | 4.48% | 4.52% |
Investment round-up
Artemis global equity head leaves
Artemis head of global equities Alex Stanić has exited the firm to join AustralianSuper, Australia’s largest superannuation fund, as head of core equity. He was lead manager on the Global Select and Global Focus strategies.
AGI managers land at AllianceBernstein
AllianceBernstein has hired a five-strong team from Allianz Global Investors (AGI). AGI had originally announced the departures in October, and changed the management team on its €4.5bn (£3.83bn) Allianz Europe Equity Growth strategy, but the destination of the managers had been unknown.
Aberdeen EMD head to retire
Brett Diment, Aberdeen Investments’ head of global emerging market debt, is to retire from the group at the end of the year. He has held the role for almost 20 years.
Aberdeen AUM drops 6.4%
Aberdeen Group Investment saw a £6.4bn net outflow in the first quarter of 2025, prompted by weaker markets and the loss of a £4.2bn mandate. Investors pulled a net £4.1bn from Aberdeen’s institutional and retail wealth division. Overall AUM, hit £359.6bn at the end of March.
LTAF makes first investment
Future Growth Capital, a collaboration between Schroders and Phoenix, has confirmed its UK long-term asset fund (LTAF) has made its first investment in line with the UK government’s Long-Term Investment for Technology and Science initiative.
… and the week that will be
US and UK rate decisions
The US is expected to keep rates on hold for this month, but the market is increasingly suggesting a 25 basis-point cut could be on the cards for June. With that in mind, investors will be paying close attention to Federal Reserve chair Jay Powell’s language and accompanying press conference. The UK is widely expected to cut rates on Thursday but, as in the US, the guidance from the Bank of England will be closely watched.
Germany’s ‘new broom’
Friedrich Merz is expected to take power as German Chancellor on Tuesday. He has shown real energy to date in his desire to fix the economic and political problems facing Germany, starting with a vast fiscal stimulus plan. This week should reveal some of the practical steps he plans to take to reverse the country’s economic decline and stand up to the US’s aggressive new trade policies. Read more from the FT here
The week in numbers
Bank of England rate decision: Consensus expectations are for a 25 basis-point cut to 4.25%.
Fed rate decision: The US central bank is widely expected to hold rates at 4.5%.
China services PMI (April): Consensus expectations are for a fall to 50.5 from 51.9.
US trade balance (March): Investors will be watching closely to judge the scale of ‘front-running’ ahead of the imposition of tariffs.
China trade data (April): Exports are expected to fall 2% year-on-year and imports to fall 5%.
UK construction PMI (April): Consensus expectations are for a rise to 47 from 46.4.
Company news: Half-year/quarter results expected from Admiral, Advanced Micro Devices (AMD), Chesnara, Costco, Disney, Palantir and Rightmove.
In focus: US v Europe
The trade tussle between the US and China may be dominating the financial headlines but, in investment markets, the real battle is between the US and Europe. Europe has been the grateful recipient of fund flows out of the US since the start of the year – but there has been a bounce-back in US equities since the news of a tariff pause. So which looks set to win the battle for the hearts and minds of asset allocators from here?
Fund flows should provide the most tangible evidence of which way the wind is blowing – but the picture is actually mixed. Calastone data for March showed US equities as easily the most popular category, with UK investors adding a net £1.77bn to their North American equity fund holdings. Their instinct appears to be to buy on the dip, with index trackers attracting 80% of the inflows to North American equity funds.
“The strong appetite for US equities in March is at odds with tidal forces in global markets that are seeing a strong rotation out of US assets and into markets such as Europe and the UK,” says Edward Glyn, head of global markets at Calastone. “It may well be that some investors judge the recent falls to be a dip worth buying.”
Yet Glyn also points out that significant trading volumes hint at disagreement among investors on US equities, adding: “The numbers trading out and those trading in are much larger than usual.” Other data suggests a weaker performance for US equities in April – for example, LSEG Lipper numbers showed global investors withdrawing a net $15.56bn (£11.68bn) from US equity funds during the week to 30 April.
European equities have been more consistent, with the Calastone March data showing it as the best month for European equity funds since July 2024, with £217m of inflows. The LSEG Lipper data meanwhile showed investors buying a net $14.64bn-worth of European equity funds in the week to 30 April – the most in any week since mid-March 2024.
Economic performance
The relative economic performance is even tougher to call – and will depend on the ultimate outcome of the tariff regime. For his part, Alec Cutler, manager of the Orbis Global Balanced fund, is positioned for a stagflationary environment in the US. “While inflation expectations for five to 10 years out are pegged at 2%, we still can’t get the maths to work,” he says. “Our maths works out to 4% to 4.5% inflation – that is a massive deal in and of itself.
“On the economic side, Trump has reversed a lot of the things the previous administration was doing to keep the economic going at all costs. All costs translated into massive stimulus, all the time – anything to shove liquidity into the system. Recognising the national debt is out of control, Trump has said we can’t do that anymore.
“The US has run out of runway to boost the economy for fiscal spending and he’s now attacking the rest of the world, including the US’s nearest-and-dearest trading partners. That’s not only inflationary, it’s recessionary. The actions of the current administration are enhancing inflation and decreasing the probability of economic growth.”
The US has run out of runway to boost the economy for fiscal spending and he’s now attacking the rest of the world, including the US’s nearest-and-dearest trading partners. That’s not only inflationary, it’s recessionary.”
Others are more confident in the bouncebackability of the US economy. David Coombs, head of multi-asset investments at Rathbones, concedes Trump has an “execution problem” – “The bull-in-a-china shop approach of ‘Liberation Day’ created chaos among friends and so-called foes alike” – but adds: “I am going to make a big call here – come late summer, I think we will be through the tariff shock and fears of US recession and inflation will be diminishing.”
For Maneesh Bajaj, manager of the Brown Advisory US Flexible Equity fund, it is a question of whether the system holds. “The American system – although far from perfect and with glaring lapses over time – has demonstrated remarkable resilience,” he says. “The repercussions of altering the global trade order or the extent of these changes, along with their impact on equity markets, remain unpredictable. One cannot dismiss the possibility the consequences could be dire.
“Free elections, free speech, a free press, the rights of assembly and petition, the rule of law, due process, free enterprise and a culture of innovation have collectively fostered a self-correcting mechanism that continually strives to improve what we think of as ‘the American way’. This resilient framework has produced economic progress that has consistently pushed equity values higher over longer-term horizons.”
Views on European economic growth are less variable. Although the ultimate impact of the tariffs is unknown, Europe has the advantage of not engaging in a giant, unpredictable economic experiment with an uncertain, potentially calamitous, outcome. That aside, though, the picture is uninspiring. The latest S&P Global flash PMI survey showed the eurozone economy largely flat in April. It found that manufacturing had benefited from some front-running ahead of the tariff changes, but services were struggling.
I am going to make a big call here – come late summer, I think we will be through the tariff shock and fears of US recession and inflation will be diminishing.”
As with everywhere across the world, business confidence was weak. “The worsening order-book situation, coupled with growing concerns over global trade and US protectionism, fed through to a considerable deterioration of business confidence,” says Chris Williamson, chief business economist at S&P Global Market Intelligence. “Expectations of output over the next 12 months fell in April to the lowest since November 2022, dropping in both manufacturing and services.”
That said, European economies may benefit from the stimulus created by defence spending. Equally, unlike the US, the European Central Bank has the flexibility to cut interest rates because inflationary pressures are lower. Interest rates have come down from 4.5% to just 2.4% in 12 months and there may still be a lagged effect from rate cuts coming through in European economic data.
Corporate strength
The recent earnings season has revealed pressure points in both regions. “Apple is very poorly positioned in this environment, as is Tesla in terms of what could happen from a full disconnect with China,” says Orbis’s Cutler. Tesla took a significant hit in its first-quarter results, with automotive revenues down 20%. Apple has said the impact from tariffs could hit $900bn in the second quarter.
Meanwhile, AJ Bell points out that major US corporations such as General Motors, Heinz, Kraft, Starbucks and UPS have either cut their full-year guidance or withdrawn it altogether due to a lack of sales and earnings visibility.
That would be a cross against the US – although strong results from Meta and Microsoft bucked the general gloom. Equally, Cutler also points out that the luxury goods makers – predominantly European – are also poorly positioned. With China an important market, they may struggle if tariffs dent growth.
And Rathbones’ Coombs adds: “We won’t be following the ‘hot’ investment flows into Europe. The regulatory environment hasn’t changed in the last six months – nor the lack of innovation nor poor productivity levels. Yes, valuations might be lower in Europe – but they should be.”
Some pockets of strength can be seen in Europe, however. The financials have delivered strong results, for example, and defence companies are starting to show the benefits of rising spending. Germany’s Rheinmetall, for example, posted a 46% increase in first-quarter sales, driven primarily by its defence business. Investors will certainly be watching Novo Nordisk and Siemens’ earnings closely.
Does all of this bring us any closer to a verdict? While there has been some ‘hot’ money heading into Europe, it does not come close to the amount that has poured into the US in recent years – and with stockmarkets almost back to their pre-‘Liberation Day’ levels, valuations still look problematic. The range of outcomes for the US are very mixed, and investors would be aligning themselves with the volatile policies of the US administration. Against that backdrop, slower-growing Europe would appear a safer option.
Read more on this from Morningstar here, from Reuters here and from S&P here
In focus: Hundred up
30 April marked Donald Trump’s 100th day in office and – from his geopolitical interventions to his eccentric economic strategy – no-one could accuse him of a lack of activity. The success of that activity, however, is more open to question. The administration has certainly demonstrated its ability to ‘move fast and break things’ but will now need to show why that approach may lead to an improvement in people’s lives.
While many Americans have bought into the Trump agenda – the vague desire to ‘Make America Great Again’, plus attacks on immigration, reshoring of domestic manufacturing and cutting government spending – the erratic execution of his political agenda has made people nervous.
During his first 100 days, the US has flirted with a bond market collapse that could have seen US borrowing costs soar. It has seen a meltdown in financial markets. As Ben Yearsley, consultant at Fairview Investing, says: “To put this turbulence into context, the Vix index of US stockmarket volatility – often dubbed ‘the fear index’ – reached levels only previously witnessed at the peak of the global financial crisis and the outbreak of Covid.”
The economic consequences of the tariff regime have yet to be reflected fully in economic data, but companies are already reporting a potential fallout. The impact of tariffs was clear in the recent round of results statements, with even behemoths such as Apple, Tesla and Amazon exposed to the fall-out. Front-running of imports tipped the US into recession in the first quarter of the year.
Theory and reality
Is this all part of a plan? There are still plenty prepared to give Trump the benefit of the doubt as a capable negotiator and strategic powerhouse. Still, that argument is getting harder to make as theory bumps heads with reality.
“The US, so long an engine of world growth, could slip towards recession while the rest of the world gradually reroutes its trading patterns, allowing modest growth,” suggests Amadeo Alentorn, head of systematic equities at Jupiter Asset Management. “While several economists and investment banks have increased their forecast probabilities of a recession after the tariffs, perhaps the prevailing sentiment among commentators is currently one of uncertainty.
“The tariffs, most economists believe, are unlikely to achieve the US administration’s aim of reversing the US trade deficit. Given their questionable effectiveness, there are concerns that Trump could perhaps resort to other unconventional measures to pressure countries with which the US runs deficits. After the administration’s policy reversal between 2 April and 9 April, anything is possible.”
Alentorn’s view is that, even if there is eventually a significant softening of tariffs, the erratic decision-making of the US administration during its first 100 days could leave a permanent mark on business and consumer confidence. “Restoring trust among allies and longstanding trading partners will be difficult,” he concludes. “Markets could remain affected by uncertainty and volatility for the duration of this US administration.”
