Shaw and Partners

US stocks began the week cautiously, with the recent rebound running out of momentum; on Monday the S&P 500 and the Dow Jones Industrial Average snapped a nine-session winning streak. Equities later found support on growing hopes of a de-escalation in trade tensions, with news that Treasury Secretary Scott Bessent would meet with Chinese officials in Geneva over the weekend for trade discussions. On Friday Trump hinted that the 145% tariffs on Chinese imports could be rolled back, and indeed the US agreed to reduce the reciprocal tariffs. Furthermore, on Thursday it was announced that the UK had become the first country to strike a deal with the Trump administration in response to the Liberation Day levies.

Despite the trade optimism and the possibility for further deals to be made, for the week the major US equity indices ended slightly lower. The S&P 500 declined 0.5%, the Dow Jones dropped 0.2% and the tech-heavy Nasdaq Composite lost 0.3%. Small caps managed to fare better, with the Russell 2000 up almost 1%. Treasury yields moved higher in response to the tariff news, with the 10-year note climbing to 4.39%. In other news, the Federal Reserve left its interest rates on hold. The central bank will continue to monitor the incoming economic data to steer its decisions, but noted that the “risks of higher unemployment and higher inflation have risen” due to tariffs.

European markets were boosted by the improved trade sentiment. Overall, the pan-European STOXX 600 added 0.3% in its fourth consecutive weekly gain. Automobiles were some of the best performers of the week, given their trade sensitivity. Germany’s DAX rose 1.8%, hitting a record high on Friday and recouping all of its tariff induced losses. In contrast UK and French indices saw modest losses for the week. The Bank of England lowered its policy rate by a quarter percentage point, although two of the nine-member Monetary Policy Committee voted in favour of staying on hold. Meanwhile Norway’s and Sweden’s central banks both remained on hold.

Chinese stocks saw a holiday shortened week but managed to log gains, with the Shanghai Composite up 1.9%. Meanwhile in Hong Kong the Hang Seng rose 1.6%. Aside from the weekend’s scheduled trade discussions, markets got a boost as the People’s Bank of China cut its seven-day reverse repurchase rate by 0.1 percentage points to 1.4%, as well as other rates to release long-term liquidity into the economy. Japanese indices also had a holiday shortened week, with the Nikkei gaining 1.8%, despite limited signs of progress over a US-Japan trade deal.

Weekly macro highlights

Fed holds rates steady in May

The Federal Reserve kept its target range for the federal funds rate unchanged at 4.25% to 4.50% at its May meeting, for a third consecutive time. The decision reflects ongoing uncertainty around inflation and employment. The consumer price index (CPI) rose 2.4% year-on-year in March, down from 2.8% in February, while core CPI, which excludes food and energy, increased by 2.8%. The unemployment rate remained steady at 4.2% in April, with 177,000 jobs added, indicating a resilient labour market. Initial jobless claims fell to 228,000 in the week ending 03 May, suggesting continued strength in employment. Fed Chair Jerome Powell reiterated that the central bank is taking a cautious, data-dependent approach, stating it will wait to see how the economy evolves before making further adjustments. Meanwhile, President Trump criticised Powell for not cutting rates faster, and urged the Fed to follow other central banks in reducing rates.

BoE cuts interest rates in May

The Bank of England (BoE) Monetary Policy Committee (MPC) voted 5-4 to cut its policy rate, Bank Rate, by 25 basis points to 4.25% at its meeting on 08 May. The nine-member committee saw a rare three-way split, with two members supporting a larger 50bp cut and two preferring to hold rates steady. The decision was driven by slowing domestic inflation, as the CPI fell to 2.6% in March, alongside concerns over weakening labour market conditions, with unemployment expected to rise to 5% next year. The BoE revised its GDP growth forecast for Q1 2025 to 0.6%, exceeding the underlying trend of 0.1%. The full-year 2025 growth projection was also raised from 0.75% to 1.0%. Inflation is projected to peak at 3.5% this summer before returning to the 2% target by early 2027. The BoE also warned that recent US tariffs could reduce UK GDP by 0.3% over the next three years.

BCB hikes rates in May

The Monetary Policy Committee (Copom) of the Banco Central do Brasil (BCB) raised its Selic rate by 50 basis points to 14.75% at its meeting on 07 May. This marks the sixth consecutive hike and the highest rate since August 2006. The decision was supported unanimously by all nine voting members and aims to address persistent inflation pressures. Headline inflation stood at 5.49% in April, well above the 3% target, while 2025 and 2026 inflation expectations are currently set for 4.8% and 3.6%, respectively. The Copom highlighted upside inflation risks, including a more prolonged period of de-anchored expectations and a stronger-than-expected resilience in services inflation. Downside risks include a steeper global slowdown and lower commodity prices. The BCB indicated it will maintain a contractionary stance of monetary policy for an extended period, while remaining data dependent as it monitors incoming inflation dynamics.