Weekly house view | Fumata bianca
The week in review
A historic week ended with white smoke – or “fumata bianca” – rising from the Vatican, where cardinals elected the first US pope, and with the US and China agreeing to major tariff reductions for 90 days: China will lower tariffs on US goods to 10% and the US those on Chinese goods to 30% for that period. The US-China breakthrough after talks in Geneva followed a US-UK trade deal.
Optimism about tariff talks, and better-than-feared results, helped US equities hold above the level of “Liberation Day”, 2 April. The S&P 500i dipped 0.5% on the week (USD). The 10-year Treasury yield rose 7 bps to 4.38%. Safe-haven gold rose 2.6%.
After a week of rising tensions, India and Pakistan reached a fragile ceasefire. The resilience in US stocks came despite a US auto giant suspending guidance and a Japanese electronics group cutting 10,000 jobs.
Citing a further increase in uncertainty about the economic outlook, the Fed left rates unchanged. The Bank of England cut rates by 25bps to 4.25%, keeping its “gradual and careful” guidance.
In Germany, Friedrich Merz required a second round of voting by lawmakers to be elected chancellor, the first time that has happened in the post-war era.
Quote of the week
“It’s not for sale. It won’t be for sale, ever,” Prime Minister Mark Carney said of Canada when meeting Trump.
Key data
In April, Chinese exports grew by 8.1% year-on-year. Month-on-month, exports declined by 3.8%, a smaller contraction than expected. Exports to the US fell by 23.7% due to high tariffs, but this decline was less severe than anticipated. Exports to ASEAN countries increased by 7.3%, indicating ongoing trade re-routing. In the US, the ISM services sector survey rose by more than expected to 51.6, signalling a pick-up in growth. Initial jobless claims declined 13,000 to 228,000 in the week ended May 3, in line with expectations. Reflecting importers’ rush ahead of the tariffs, the US trade deficit widened by USD17.3bn to USD140.5bn in March. Swiss CPI fell to 0% in April. A 25 bps SNB cut in June is quite likely.