Market navigator: week of 5 May 2025
Global markets respond positively to trade developments as the Hang Seng rises 2.4% on Chinese stimulus plans, while upcoming Fed and BoE decisions take centre stage.
Written by
Fabien Yip
Market Analyst
Summary
- What happened last week: Trade talks progressed on multiple fronts while US GDP contracted by 0.3% in Q1, the first decline since Q1 2022, driven largely by pre-tariff stockpiling.
- Markets in focus: The Hang Seng Index rose 2.4% following announcements of planned Chinese stimulus measures, gold retreated 8% from its peak to $3230, and USD/JPY strengthened after the Bank of Japan maintained rates at 0.5% while delaying planned rate hikes.
- The week ahead: The Federal Reserve and Bank of England announce key interest rate decisions and earnings season continues with AMD, Walt Disney and Coinbase.
What happened last week
- Trade talks progress: US Commerce Secretary Lutnick confirmed a trade deal has been finalised, though the counterparty remains undisclosed. Agreements with India, Japan and South Korea are reportedly imminent, while prospects for US-China trade discussions have emerged.
- China's economic activity: Purchasing Managers' Index (PMI) data reveals deceleration in economic activity with the official manufacturing index falling from 50.5 in March to 49.0 in April and non-manufacturing index moderating from 50.8 to 50.4, though tariff impacts have likely not fully materialised.
- US economy contracts: GDP declined by 0.3% annualised in Q1, the first contraction since Q1 2022. Pre-tariff stockpiling significantly impacted net exports, with slower consumer spending and reduced federal expenditure further weighing on performance.
- Mixed job market signals: While openings declined sharply in the Job Openings and Labor Turnover Survey (JOLTS) report, non-farm payrolls showed solid growth of 177,000, exceeding expectations. Unemployment remained stable at 4.2%, reducing expectations for a June Federal Reserve (Fed) rate cut.
- Q1 earnings: Meta and Microsoft reported strong Q1 results with AI driving growth. Apple exceeded expectations but faces China sales decline and $900 million tariff impact. Amazon surpassed earnings forecasts but issued cautious Q2 guidance. All four tech giants cited tariff challenges while maintaining significant AI investments. Meanwhile, China's state banks reported mixed results amid narrowing interest rates margins.
Markets in focus
China unveils economic support framework
The Chinese government has recently articulated more comprehensive details regarding economic support measures, including employment subsidies for university graduates, financial assistance packages for exporters, and strategic initiatives to stimulate domestic consumption. Officials have confirmed the imminent implementation of a technology development fund and consumption stimulus policies by June, whilst expressing confidence in achieving the 5% growth target despite ongoing US trade tensions. This enhanced clarity generated market optimism, propelling the Hang Seng Index (HSI) upward by 2.4% last week.
The current week represents another shortened trading period for numerous Asian markets, including Hong Kong, which observes a market holiday on Monday. Investors will be meticulously analysing developments in US-China trade negotiations and assessing the forthcoming April trade data release.
Technical analysis indicates that momentum has improved substantially since early April, with the index approaching the 50-day moving average (SMA). The HSI price pattern demonstrates characteristics consistent with Elliott Wave theory, with the recent market recovery exhibiting behaviour typical of Wave B within the framework. A 0.618 Fibonacci extension of Wave A would potentially advance the index to 22,729 before a subsequent retracement towards 19,000. However, a definitive breach of the 50-day SMA could establish a trajectory towards the psychological threshold of 24,000.
Figure 1: Hang Seng index (daily) price chart
Technical correction in gold market
Gold has experienced an 8% correction from its historical peak and currently trades at approximately $3230. The improved market sentiment catalysed by diminishing US trade tensions has strengthened the US dollar and risk assets, precipitating the gold price retracement.
The World Gold Council's latest analysis indicates persistently robust demand for gold. Global central banks augmented their reserves by 244 tonnes in Q1, whilst exchange-traded funds (ETFs) recorded inflows of 227 tonnes (equivalent to approximately $21 billion), representing the highest quarterly influx since Q1 2022. Despite a temporary moderation in price momentum, Chinese investors have maintained their gold accumulation strategy through ETFs, futures contract and gold bars.
Gold prices descended below the 20-day SMA last week, bringing valuations to more sustainable levels as reflected in the relative strength index (RSI). This correction may present an opportunity to enter for bullish market participants. Buying interests is anticipated around $3190, with potential upside towards the recent high of $3,500. However, a decisive breach below $3190 could establish a trajectory towards the subsequent support level at approximately $3100.
Figure 2: Gold (daily) price chart
USD/JPY advances following Bank of Japan policy decision
USD/JPY has sustained its recovery from seven-month lows, bolstered by the Bank of Japan's (BoJ) decision to maintain interest rates at 0.5%. The board emphasised that uncertainties surrounding US tariffs would exert pressure on Japanese corporate earnings and consumer expenditure, consequently decelerating economic growth. Accordingly, the BoJ revised its growth forecast for the current fiscal year downward to 0.5% from the previous projection of 1.1%. While the trajectory towards interest rate hikes remains intact, the implementation timeline has been extended.
Market reaction has primarily focused on the delayed interest rate adjustment schedule; however, it is essential to recognise that the yen's safe-haven status can supersede Japan's economic growth considerations during periods of heightened market volatility, as evidenced during April's market turbulence. Any substantive progress in trade negotiations could also significantly alter the BoJ's baseline economic assessment.
From a technical perspective, USD/JPY will remain subject to downward pressure while trading below the 200-day SMA with an adequate safety margin. The currency pair is currently intersecting the upper boundary of the descending channel at approximately 145. Although USD/JPY is likely to revert to the prevailing downtrend, a clear and sustained breakout would suggest temporary dollar strength towards the resistance zone at 148.2-148.5. The recent low at 139.9 represents significant technical support.
Figure 3: USD/JPY (daily) price chart
The week ahead
This week features a lighter schedule of economic data releases, with the Federal Open Market Committee (FOMC) meeting and the Bank of England's (BoE) interest rate decision representing the principal events for market participants. The quarterly earnings season progresses with pivotal financial disclosures from Advanced Micro Devices, Walt Disney and Coinbase.
Although US inflation appears to be moderating, with core personal consumption expenditures (PCE) price index decelerating to 2.6% year-on-year (YoY) in March, market consensus anticipates the Fed will maintain current policy rates while assessing the impact of President Trump's tariff implementations. Fed funds futures currently indicate expectations for three to four 25-basis-point reductions by year-end, reflecting a more accommodative outlook compared to market views prior to Liberation Day on 2 April. Market participants will scrutinise Thursday's FOMC statement for indications regarding the future interest rate trajectory.
Figure 4: Fed funds futures implied yield
Key macro events this week
Monday 5 May 2025
- 10.00pm (HK time) - US ISM Services PMI (April): previous 50.8, consensus 50.6
Tuesday 6 May 2025
- 09.45am (HK time) - China Caixin Services PMI (April): previous 51.9, consensus 51.7
- 08.30pm (HK time) - US Balance of Trade (March): previous -$122.7B, consensus -$129B
Thursday 8 May 2025
- 2.00am (HK time) - US Fed Interest Rate Decision: expect to maintain policy rate at 4.25-4.5%
- 7.50am (HK time) - Japan BoJ Monetary Policy Meeting Minutes
- 7.00pm (HK time) - UK BoE Interest Rate Decision: expect to reduce bank rate from 4.5% to 4.25%
Friday 9 May 2025
- 11.00am (HK time) - China Balance of Trade (April): previous $102.64B, consensus $85.5B
- 11.00am (HK time) - China Exports YoY (April): previous 12.4%, consensus 0.5%
- 11.00am (HK time) - China Imports YoY (April): previous -4.3%, consensus -6.0%
Saturday 10 May 2025
- 9.30am (HK time) -- China Inflation Rate YoY (April): previous -0.1%
Key corporate earnings
Monday 5 May 2025
Tuesday 6 May 2025
Wednesday 7 May 2025
Thursday 8 May 2025
Source: Trading Economics, AASTOCKS, Reuters (as of 3 May 2025)
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