By Bas Kooijman, CEO and Asset Manager of DHF Capital S.A
As markets navigate a complex global backdrop, the past week highlighted how closely investor sentiment is tied to evolving trade dynamics, inflation expectations, and central bank actions. Here’s a breakdown of key developments across the U.S., Europe, and Asia-Pacific.
United States: Stocks Rise Despite Legal and Trade Tensions
U.S. equity markets posted gains over the holiday-shortened week, led by the Nasdaq Composite (+2.01%), followed by the S&P 500 (+1.88%) and Dow Jones Industrial Average (+1.60%). While the initial rally was driven by optimism over delayed tariffs and fast-tracked trade negotiations with the European Union, the mood turned cautious toward the week’s end.
A major volatility driver came from the courts. The U.S. Court of International Trade ruled that President Trump lacked authority to impose several recent global tariffs, sparking a rally in stocks and bonds. However, this was short-lived as a federal appeals court reinstated the tariffs temporarily pending further review — cooling investor enthusiasm.
Trade relations with China also remained in focus. Comments from Treasury Secretary Scott Bessent acknowledged a slowdown in negotiations, and President Trump alleged that China had breached its preliminary commitments – both contributing to late-week uncertainty.
Despite the geopolitical noise, economic indicators showed a more balanced picture. Inflation, as measured by the Fed’s preferred gauge — the core Personal Consumption Expenditures (PCE) index — eased to 2.5% year-over-year in April, marking the slowest pace since 2021. However, this still exceeds the Fed’s 2% target, and policymakers expressed ongoing concern about potential inflationary pressure from trade disruptions.
On the consumer side, sentiment rebounded. The Conference Board’s Consumer Confidence Index jumped sharply in May, driven by improved outlooks amid tariff delays. The University of Michigan’s sentiment index also stabilized, ending a month-long decline.
Bond markets reacted positively to the court ruling, with U.S. Treasuries gaining through Thursday. High-yield and investment-grade corporate bonds also saw strength, supported by equity gains, stronger demand, and improved sentiment.
Europe: Trade Delay Buoys Markets, But Economic Pressures Persist
European markets edged higher as the threat of immediate U.S. tariffs on EU goods was temporarily eased. The STOXX Europe 600 rose 0.65%, with national indices in Germany, Italy, and the UK all finishing the week in positive territory. Investor relief was evident, but underlying economic data remained mixed.
Inflation showed signs of easing across several major European economies. May’s preliminary data revealed headline inflation in Spain and Italy at 1.9%, aligning with the European Central Bank’s (ECB) 2% target. France and Germany also reported slower price growth. With this backdrop, expectations are rising that the ECB may cut interest rates as early as June. T. Rowe Price’s Chief European Economist expects a 25-basis-point reduction in the deposit rate.
However, consumer expectations remain stubbornly high. The ECB’s own survey showed euro area households anticipating 3.1% inflation over the next year, up from 2.9% previously, signaling skepticism about inflation moderation.
Labor markets showed signs of stress. Germany’s unemployment rate rose more than expected, nearing the 3 million mark, with a notable drop in job openings. Meanwhile, the UK saw a dip in service sector sentiment, attributed to higher employment taxes and rising cost expectations. Automotive production also slumped, marking the lowest April output since 1952 (excluding the pandemic era).
These indicators reflect the challenges European economies face in sustaining recovery momentum amid uncertainty over trade policy and interest rate shifts.
Asia-Pacific: Japan Rallies, China Stimulates, Trade Talks Shape Outlook
Japanese markets outperformed, with the Nikkei 225 gaining 2.17% and the TOPIX up 2.41%, fueled by optimism surrounding U.S.-Japan trade negotiations. A constructive call between President Trump and Prime Minister Ishiba ahead of G7 meetings encouraged speculation of a deal. Additionally, Trump’s endorsement of a major Japanese steel acquisition in the U.S. further supported market confidence.
Economic indicators from Japan were mixed. Inflation in Tokyo accelerated to 3.6%, the highest in over two years, while industrial production contracted. The Bank of Japan maintained its accommodative stance, citing global trade uncertainties and soft energy prices as risks to the inflation outlook.
In China, equity markets declined as investors digested muted economic data and a pause in tariff disputes. However, the Chinese government announced a substantial stimulus plan, allocating roughly USD 70 billion to infrastructure investments in sectors like AI and digital technologies. This effort, paired with early planning for the next Five-Year Plan, reflects Beijing’s strategic pivot to support long-term manufacturing and innovation despite global trade headwinds.
Conclusion
Global markets remain highly sensitive to shifts in trade policy, inflation dynamics, and political developments. While investor sentiment improved in some regions, legal uncertainties, employment softness, and lingering geopolitical friction underscore the fragile nature of the current recovery.