U.S. equity markets closed the week with mixed results. While large-cap indices like the S&P 500 and Nasdaq Composite posted modest declines — 0.47% and 0.27%, respectively — smaller companies fared better, with small- and mid-cap indexes logging a fifth straight week of gains.

The week began with a loss, snapping the S&P’s nine-session winning streak, but regained momentum mid-week thanks to news of planned trade talks between U.S. and Chinese officials in Switzerland and the announcement of a new trade agreement between the U.S. and UK.

A key event was the Federal Reserve’s policy meeting, where interest rates were held steady at 4.25%–4.50%. Fed Chair Jerome Powell acknowledged the growing uncertainty in the economic outlook, citing tensions between the goals of price stability and full employment. While the economy is still growing, the risks of higher inflation and rising unemployment remain, partly due to the broader impact of tariffs and trade disputes. As a result, markets now see a lower probability of a near-term rate cut.

In terms of economic indicators, the ISM Services PMI showed modest improvement, rising to 51.6 in April, with all subcomponents except business activity showing growth. However, concerns lingered about inflation, as the prices index rose to its highest level in over two years—an increase largely tied to tariffs.

Bond markets responded to the Fed’s cautious tone and optimism around trade with rising yields. Treasury yields climbed, investment-grade corporate bonds saw slight declines, and municipal bonds remained relatively stable due to low issuance. Meanwhile, the high-yield bond market saw light activity, with investors awaiting more clarity following the Fed’s announcement.

Europe: Cautious optimism and diverging central bank policies

European markets edged higher on optimism about easing global trade tensions. The STOXX Europe 600 rose 0.29%, marking its fourth consecutive weekly gain. National indices were mixed: Germany and Italy posted notable gains, while the UK and France saw minor declines.

The Bank of England (BoE) cut its policy rate by 0.25 percentage points to 4.25%, a move viewed as finely balanced. While the decision reflects caution over global economic uncertainty, the narrow 5–4 vote and comments in meeting minutes suggest the path for further cuts remains unclear. In contrast, Sweden’s Riksbank and Norway’s Norges Bank held rates steady but signaled that future easing may be warranted as inflation pressures and trade uncertainties persist.

Germany reported a significant increase in industrial output and orders in March, likely a front-loaded response to upcoming U.S. tariffs. Output rose by 3%, while orders jumped 3.6%, signaling short-term strength in manufacturing.

In the UK, however, momentum slowed in the housing market. According to the Royal Institution of Chartered Surveyors (RICS), house prices and transaction volumes fell in April following the expiration of a tax break for first-time buyers. This slowdown highlights broader affordability issues and cautious consumer sentiment amid a shifting interest rate environment.

Overall, while trade hopes offered a modest boost, diverging central bank stances and persistent inflation concerns underscore a fragile recovery across the region.

Asia: Trade talks, stimulus measures, and currency moves Japanese markets advanced during a shortened week. The Nikkei 225 rose 1.83%, and the TOPIX gained 1.70%. Positive sentiment was driven by renewed trade dialogue and the U.S.-UK trade agreement, which helped weaken the yen and lifted exporter shares. However, trade negotiations between the U.S. and Japan remain in early stages, with both sides holding firm on key demands. The U.S. wants better access to Japanese agriculture markets, while Japan seeks full tariff removals, particularly on autos and industrial goods.

Economic data from Japan showed that real wages declined 2.1% year-over-year in March, with nominal wage growth falling short of expectations. This weak wage trend raises concerns about the timing of future Bank of Japan policy moves, especially with inflation risks and global uncertainty on the rise.

In China, equity markets posted gains as officials announced new stimulus measures ahead of trade talks with the U.S. The CSI 300 Index rose 2.00%, while the Shanghai Composite gained 1.92%. The People’s Bank of China cut its seven-day repo rate and reduced bank reserve requirements, injecting liquidity to support the economy in the face of heightened U.S. tariffs.

China’s export data showed a sharp 21% drop in shipments to the U.S., while exports to other regions such as Southeast Asia and the EU increased. This highlights China’s efforts to diversify trade relationships and cushion the impact of U.S. protectionist measures. Upcoming trade talks in Geneva, led by Vice Premier He Lifeng and U.S. Treasury Secretary Scott Bessent, will be crucial in shaping the economic outlook for both countries.

With central banks adopting divergent strategies and global trade talks underway, markets remain finely balanced between cautious optimism and persistent uncertainty.

Sources: London Loves Business