Market Review 12th May 2025
- Simplicity News Desk
- 3 days ago
- 5 min read
Everything you need to know, Simplified!
Summary
Equity and bond markets were mostly rangebound last week, despite a heavy calendar of central bank meetings and policy moves across the US Federal Reserve (Fed), Bank of England (BoE), and People’s Bank of China (PBoC)
The Fed held rates steady, striking a cautious tone amid rising inflation uncertainty as Powell emphasised resilience in the hard data but offered little forward guidance
The BoE cut rates to 4.25% as expected, but the vote split revealed a more hawkish tilt than anticipated. Short-term gilt yields rose slightly on the news
The PBoC delivered long-promised easing measures, including a 10bps policy cut and a 50bps reserve requirement ratio reduction, though markets remained sceptical of their impact
Trade developments drove market sentiment late in the week. A US–UK trade deal was announced, and broader negotiations with other allies are likely to follow
More significantly, this morning the US and China agreed to a temporary, dramatic reduction in tariffs, giving both sides three months to strike a broader deal. Markets immediately welcomed the meaningful de-escalation
With US midterms on the horizon, the administration is likely to pursue more economic wins to shore up voter confidence
While challenges remain, the shift in tone from confrontation to cooperation is a clear positive for global risk sentiment.
Market Review
God’s work
The Vatican has elected its first American Pope. Cardinal Robert Prevost will become Pope Leo XIV, leader of the Catholic Church and head of state for the country with the highest number of Bloomberg terminals per capita. Even the Holy See is plugged into the markets and given the state of the world, let’s hope they’re praying for a soft landing.
It wasn’t just the College of Cardinals who sat down — this was a week of busy meetings, with the Fed, the BoE, and the PBoC all gathering to set policy. Meanwhile, many nations have been scrambling to negotiate preferential trade deals with the US, with the UK the first across the line. Amid all the action, markets were mostly rangebound, with both equities and bonds ending mildly lower.
The Art of the Deal
Some optimism was found in the announcement of a skeletal US–UK trade deal—most of the meat is still to come. Still, it marks the first in what’s likely to become a broader series of agreements, with Israel, India, Australia, Japan, and South Korea likely next in line. Progress with the EU appears unlikely for now, but the atmosphere has clearly softened since the ‘Liberation Day’ tariff announcements. While much of the administration — President included — likely underestimated the initial market reaction, there was always scope to negotiate better terms. A point, no doubt, familiar to anyone who’s read The Art of the Deal.
There were further signs of cooperation as Washington and Beijing entered negotiations over the weekend. Neither side can bear the full weight of an entrenched trade war. The economic pain may cut deeper for China, but the US tends to have a lower political threshold. This morning, the two sides announced a temporary and dramatic reduction in tariffs, giving themselves a three-month window to strike a broader agreement. It’s a meaningful step toward de-escalation. While some form of punitive tariff on China still looks likely, markets will take comfort in the shift from confrontation to negotiation.
With midterm elections approaching, Republicans will be pushing for more deals, more declarations of victory, and a renewed focus on economic stewardship to keep voters onside. We saw a glimpse of this as Trump signed the deal with the UK, saying, “Let me tell you, this country will be like a rocket ship that goes straight up.”
Nod to the BoE
The BoE cut interest rates to 4.25% on Thursday, as widely expected, but the vote was more split than anticipated: five votes for a 25bps cut, two for a 50bps cut, and two to hold. This was the first Monetary Policy Committee meeting since the ‘Liberation Day’ tariffs, and with both inflation and growth risks now in play, the BoE favours a gradual approach to easing. Gilt yields rose slightly following the meeting, driven by shorter dated bonds.
Nod to the PBoC
After months of promises, the PBoC finally delivered with a 10bps policy rate cut and a 50bps reduction in the reserve requirement ratio aimed at boosting liquidity and supporting sentiment. But the measures are unlikely to move the dial meaningfully. Structural tools were also tweaked, but markets remain sceptical. China’s economy remains stuck in a low-inflation grind, and the PBoC’s approach suggests it’s not in any rush to change that.
Nod to the Fed
The Fed held its policy rate in the 4.25–4.5% range, as expected, with a unanimous decision to pause. The statement struck a cautious tone, describing recent Gross Domestic Product (GDP) weakness as a temporary distortion and reaffirming that US economic activity remains “solid.” The Fed acknowledged rising uncertainty around both inflation and unemployment and offered little forward guidance. Chair Powell noted that while sentiment has soured, the hard data is holding up. With inflation likely to tick higher over the summer, the Fed appears inclined to wait for clearer signals before moving. The bar for action is rising but for now, the Fed seems content to buy time.
The week ahead
Trade negotiations are likely to remain in focus this week, with multiple discussions underway. Most notable are the ‘constructive’ talks between the US and China taking place in Switzerland.
Tuesday: US Consumer Price Index (CPI) inflation
Our thoughts: April’s CPI print will give a first glimpse into how trade policies are translating into prices. Economists expect that monthly inflation will rise to 0.3% but annual inflation will remain constant at 2.4%.
Thursday: UK first quarter GDP
Our thoughts: First-quarter growth was likely boosted by a sharp rise in manufacturing output, driven by front-loaded US demand ahead of tariffs. Economists estimate the UK economy expanded 0.6% in Q1, up from just 0.1% in Q4.
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