Last week, the Trump administration launched Section 232 investigations into semiconductors and pharmaceuticals, while also tightening restrictions on Nvidia’s chip exports to China, heightening market fears of renewed U.S.-China trade tensions. At the same time, Federal Reserve Chair Jerome Powell emphasized the need to confirm that the inflationary impact of tariff policies is transitory, reiterating that any future policy adjustments would remain data-dependent. He also stated that the idea of a "Fed Put" has never been part of the Fed’s thinking. Weighed down by these dual headwinds, the S&P 500 declined 1.5% for the week, closing at 5,282.69.
In the bond market, the U.S. 10-year Treasury yield retreated to around 4.3%, while the U.S. dollar remained under pressure amid rising concerns over U.S. creditworthiness. The dollar index dropped below the 100 mark for the first time since 2022, closing at 99.404.
Key Economic Data Last Week
China GDP: China’s Q1 2025 GDP grew by 5.4% YoY (prior: 5.4%), beating market expectations.
On a monthly data, March retail sales grew 5.9% YoY (prior: 4.0%), with year-to-date growth reaching 4.6% (full-year 2024: 3.5%), driven by strong sales of automobiles and home appliances supported by a doubling of consumption subsidies.
Exports surged 12.4% YoY (prior: 2.3%), likely reflecting front-loaded shipments ahead of further deterioration in U.S.-China trade relations.
Fixed asset investment (FAI) rose 4.2% YTD YoY in March, supported by equipment and high-tech manufacturing investment. This also contributed to a 7.7% increase in industrial output (prior: 5.9%). However, property development investment remained weak, declining 9.9% YTD, weighing on overall investment growth.
Takeaway: China's Q1 growth remained robust, supported by fiscal stimulus and front-loaded exports. However, with reciprocal tariffs between China and the U.S. reaching 125% and 245% respectively, future export momentum may suffer. Whether consumer demand can sustain recovery beyond durable goods, and if the housing market will rebound, remain key uncertainties for continued growth.
US Retail Sales: Retail sales rose 4.6% YoY (prior: 3.5%) and 1.4% MoM (prior: 0.2%) in March. Core retail sales were up 4.5% YoY (prior: 4.2%) and 0.8% MoM (prior: 0.8%), while control group retail sales increased 4.6% YoY (prior: 5.1%) and 0.4% MoM (prior: 1.3%).
Auto, building materials, and electronics led the rebound, reflecting both pre-tariff front-loading behavior and potential passthrough of higher tariffs on Chinese imports that inflated final sales values.
Takeaway: The jump in March retail sales was largely driven by preemptive buying due to tariff fears. Although the 90-day tariff delay temporarily eased concerns, the uncertainty remains. Front-loaded demand and elevated sales may continue into Q2, though a potential demand pullback in H2 should not be overlooked.
Japan CPI: The headline CPI rose 3.6% YoY (prior: 3.7%) in March. Core CPI (ex-fresh food) was 3.2% (prior: 3.0%), and core-core CPI (excluding fresh food and energy) came in at 2.9% (prior: 2.6%).
The moderation was mainly due to falling fresh food and energy prices. However, prices of non-perishable food items continued to rise, with rice prices jumping to 92.1% YoY—the highest increase since 1971. Energy prices fell due to subsidies but with the program ending in March and all major power companies planning price hikes in April, household cost burdens are expected to rise.
Meanwhile, services inflation—closely monitored by the BoJ—continued to climb, supported by wage pressures from labor shortages. Early results from the spring wage negotiations (shunto) showed gains comparable to last year’s strong increases, offering potential for further wage acceleration.
Overall, Inflation remains above the BoJ’s target, and wage growth is gaining traction. These support the BoJ’s path toward policy normalization. However, the economic outlook is clouded by the U.S.’s aggressive reciprocal and auto tariffs, prompting markets to push back expectations for the next rate hike to the second half of the year.
Key Economic Data This Week
US Home Sales: Tariff-related uncertainty continues to weigh on housing sentiment and developer activity. Nevertheless, with the spring selling season approaching and mortgage rates easing in March, existing home sales are expected to ease slightly to an annualized 4.14 million units (prior: 4.26 million), while new home sales are forecast at 681,000 (prior: 676,000).
Euro Area PMI: Despite the 20% reciprocal tariffs being temporarily suspended, the 25% auto tariff implemented on April 3 could still exert economic pressure. However, given seven consecutive ECB rate cuts, the eurozone composite PMI is expected to remain in expansionary territory at 50.3 (prior: 50.9).
Japan Tokyo CPI: With energy subsidies ending in March and strong wage growth likely to push up services inflation, Tokyo’s April CPI is expected to accelerate to 3.3% (prior: 2.9%).