Global equity rally cools as caution returns ahead of weekend
A strong week for global markets ended on a softer note on Friday, with momentum fading from the early optimism around the US-China trade truce. Asian equities led the deceleration, while bond markets extended gains on weaker-than-expected US data, and commodity prices stabilised following recent volatility.
Asian markets ease despite strong weekly gains
Asian equities were broadly flat on Friday, capping off a week of solid performance. Hopes of easing global trade tensions have been the chief driver of the recovery over the week, after Monday’s announcement that the US and China would pause their current trade war. However, the Hang Seng dropped as Alibaba shares tumbled over 5% following disappointing quarterly results. Japan’s Nikkei was flat after quarter one (Q1) gross domestic product (GDP) revealed the economy contracted, reinforcing concerns about the fragility of its recovery.
Early trade cheer gives way to weekend caution
The initial market rally sparked by signs of a US-China trade truce began to lose traction by the end of the week. While global equities had rallied on reduced recession fears, momentum has faded to an extent, though dips have continued to be bought this week. A quieter end to the week for economic and corporate data means that this lacklustre trading could persist into Friday.
Bonds rally as US data disappoints
Treasury yields fell further on Friday after soft core retail sales and a surprise decline in producer prices bolstered expectations for Federal Reserve (Fed) rate cuts. Markets are now pricing in around 56 basis points of easing in 2025, up from 49 bps earlier in the week, though the Fed is still expected to hold at its next two meetings, with only September seeing an expectation of a 25 basis point cut.
Commodity prices stabilise
In commodities, oil prices bounced slightly following Thursday’s sharp 2% fall, triggered by signs of progress in US-Iran nuclear negotiations. Gold has managed a recovery overnight but has still finished down for the week, although it has found support at $3200.00.
Political risk remains a key overhang
Geopolitical developments continued to cast a shadow. President Trump signalled possible breakthroughs in Middle East diplomacy, including a nuclear deal with Iran, adding a new layer of complexity to the outlook. At the same time, lingering tariff threats kept markets on edge. Walmart warned it would raise prices due to rising import costs, underscoring the economic impact of ongoing trade friction.
Japan’s central bank struck a cautious tone following the country’s GDP miss, with board member Toyoaki Nakamura stressing the need to delay rate hikes amid economic uncertainty.
Looking ahead
With few economic releases scheduled, attention turns to the US import price report and the University of Michigan consumer sentiment survey for further insight into the inflation and demand outlook. But with tariffs still elevated and macro risks unresolved, investor caution is likely to persist into the start of next week.
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