Happy Friday! Here are the highlights, and my predictions for what next week might have in store.
World markets traded on a solid footing this week as the Trump administration struck what could be the first of "dozens" of trade deals in the coming weeks, and as investors cheered this weekend's US-China trade talks in Switzerland.
The S&P 500 and Nasdaq are back where they were on April 2, recovering the 15% losses in the days immediately after 'Liberation Day' when Trump unveiled his reciprocal tariffs, Germany's DAX is at new highs and Japanese stocks sealed their best weekly winning streak in over two years.
Sentiment was boosted by a sweeping raft of stimulus measures from China, including interest rate cuts and liquidity injections. The Bank of England also cut rates and the Bank of Japan looks to have put its tightening cycle on ice. While the U.S. Federal Reserve didn't ease policy, markets know where they are with it - stability amid uncertainty can be reassuring too.
On the earnings side, 450 companies listed on the S&P 500 have reported first quarter results. Earnings growth is running at around 14%, although negative projections for the second quarter have outstripped positive forecasts by almost 50%, according to IBES/LSEG analysis.
Caution reigns though, at least in U.S. markets. Despite the wave of trade optimism, Wall Street and Treasury yields ended little-changed on the week. Investors were also reminded of how erratic and unpredictable the U.S. administration is - President Donald Trump and Vice President JD Vance renewed their attacks on Fed Chair Powell, and Trump said 80% tariffs on China "seemed right", a figure the White House later said he "threw out there".
Once the dust settles and deals are reached, tariffs will be lower than those proposed on April 2, perhaps significantly lower. But the fact is, they will be significantly higher than they were before Trump entered office.
As economist Phil Suttle notes, tariffs have yet to bite, but they will. He estimates the average effective U.S. tariff rate will settle around 22%, which would be a four-fold increase from when Trump took over. Goldman Sachs economists note that while the 'hard' data has been resilient, the economy is on the "precipice of an activity slowdown".
So for investors, it depends on the starting point. Are you relatively bullish because tariffs won't be as high as looked likely on April 2, or relatively bearish because they will be much higher than before Trump? With uncertainty so high and visibility so low, the current interregnum might be appropriate.
All eyes now turn to Geneva, where a U.S. delegation led by Treasury Secretary Scott Bessent will sit down for trade talks with a Chinese team led by economic tsar He Lifeng. Monday's markets could be very interesting.
