Fin-X Weekly Update 5th May 2025

Equity markets extended their gains last week on the back of more constructive geopolitical developments, large-cap earnings, and economic data that showed no signs of immediate deterioration. Bond yields were relatively stable.

Warren Buffett announced that he would retire from Berkshire Hathaway at the end of this year.

The Australian Labor Party won a surprise majority over the weekend. The Canadian Liberals and the Singaporean PAP were also re-elected to government.

The Bank of England is expected to cut interest rates on Thursday this week, while the Federal Reserve is expected to keep rates on hold this Wednesday.

Global equity markets extended their recovery last week as some investor concerns were eased by positive news flow and incoming data.

China announced it was considering entering trade talks with the United States, while Ukraine finally signed a minerals deal with the US, stoking hopes of an earlier end to the war.

The S&P 500 index posted its longest winning streak in 20 years, while the UK's FTSE 100 broke the record for the longest winning streak ever recorded.

Over half of the S&P 500 and S&P Global 1200 companies have now reported first-quarter earnings. Surprises have been positive on average, resulting in annual growth of +12.6% and +8.3%, respectively, so far. The Microsoft (+11.1%) and Meta (+9.1%) share prices rose after pleasing results, while Apple (-1.9%) and Amazon (+0.5%) experienced more challenging conditions.

Over the weekend, Berkshire Hathaway revealed another record cash balance of US$ 347.7 billion. Warren Buffett also announced that he would be retiring at the end of the year. The 94-year-old, who built the company over the last six decades, will ask the board to nominate Greg Abel as CEO.

Australian property was the top-performing sector, rising by +5.7% after Goodman Group added +9.3%. However, the share price is still 20% below the December high.

Bond yields were comparatively stable despite a significant week for macroeconomic data, rising slightly as backward-looking results were generally better than feared.

US GDP fell by an annualised -0.3% in Q1 as imports surged. A significant rise in inventory investment somewhat offset the increase. The two numbers together implied a rush to stockpile goods ahead of the tariff implementation dates. However, the distortions were seen as temporary in a report revealing some slowing in growth but no plunge into recession.

Moreover, the April jobs report showed that the labour market remains strong at the start of Q2. Unemployment remained at 4.2% even as participation rose by +0.1% to 62.6%. +177k new non-farm payrolls were added, substantially above the expected +138k.

However, forward-looking data remained downbeat. American consumer confidence (86.0) fell to the lowest level since May 2020 as employment prospects were a primary concern. The ISM manufacturing survey was stable but remained in contraction (48.7), pulled down by new orders (47.2) and employment (46.5), while prices paid (69.8) warned of higher inflation.

The Chinese PMIs also slowed by more than anticipated in April. Manufacturing dropped back into contraction from 50.5 in March to 49.0, while non-manufacturing slipped from 50.8 to 50.4. The Caixin Manufacturing PMI slowed from 51.2 to 50.4.

Eurozone GDP expanded by +0.4% in Q1, or +1.2% compared to last year, while the early estimate of April CPI was a little hotter than anticipated, remaining at +2.2%.

As anticipated, the Bank of Japan kept interest rates on hold at 0.5% last week. President Trump renewed calls for the Federal Reserve to cut interest rates. However, the FOMC is widely expected to keep rates on hold this Wednesday. There is little chance of a cut from the Swedish or Norwegian central banks, but the Bank of England is expected to lower rates from 4.5% to 4.25%. Pound sterling interest rates were last cut in February. Another quarter point drop would bring the base rate to one per cent below the recent peak of 5.25%.

Australia's quarterly inflation data also showed that headline and trimmed mean CPI are both back within the RBA's 2% - 3% target range. Private sector credit also appears to have peaked at +6.5% yoy, providing the RBA room to cut interest rates later this month. However, economic activity isn't weakening fast enough to justify a series of rapid cuts. The re-election of Labor to a majority government also implies some moderate fiscal expansion. But a significant deterioration in the global impulse could cause the Board to match market expectations of more than four cuts this year. Despite the improvement in sentiment last week, trade issues are far from resolved, and the market may yet be proved correct.

Lastly, the Canadian Liberal and Singaporean PAP parties were also returned to government as widely expected.

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