Are trade deals, growth risks, and inflation really under control?

INSIGHT WEEKLY: May 4, 2025

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🌐 Markets Overview

📈 Markets This Week: Recovery or a False Dawn?

Market sentiment has moved from “bad” to “not so bad”. And there have been gains in the week, and here’s why.

The economic picture is still largely negative. The shadow of tariffs hangs over nearly all markets, with the prices of imported goods about to start rising. The US administration has already indicated that it is worth the pain to get to a new desired state. So, slowing growth, higher unemployment, inflation, and recessionary risks are likely outcomes.

However, markets are increasingly pricing in the likelihood of new trade agreements. There’s a growing sense of inevitability that there will be negotiations to end the current drift of changing tariffs.

India could be the first agreement, and possibly followed by the UK and Japan.

But the most critical trading partner is China.

If agreements start to get signed, the market reaction could be one of relief. If hope is already priced in, the upside may be limited. Then there is the overhang of recessionary risks. There could be a netting off of positive and negative sentiments, and the markets may not move to the upside by much. The AI boom is pretty much over. There may be a second AI boom as productivity improves through AI implementation, leading to earnings growth, but this is unlikely to be in the very near future. The reality is that the agreements on tariffs may not be soon enough, and comprehensive enough, to get global trade back to close to previous levels.

S&P 500

The bellwether S&P 500 is around -3% year to date, and +12% compared to the same time last year. There was a large dip in April when the intentions on tariffs were announced on April 2, 2025 “Liberation Day”. And there has been volatility since then.

The US dollar index

US Dollar has weakened in recent weeks, driven in part by growing concerns over tariffs. While some commentators have reignited debates about the long-term decline of the dollar as the world’s reserve currency, the chart above offers perspective. Despite recent softness, the dollar has largely remained within its recent multi-year trading band.

Looking ahead, the outlook is mixed. As the global economy becomes more multi-polar, and more trade is conducted in alternative currencies, the dollar’s dominant role may gradually face increasing challenges.

Oil prices have fallen sharply, down around 18% year to date, including a 7.5% decline this week alone. Despite weakening global demand, OPEC has opted to increase output, with member nations set to add approximately 400,000 barrels per day starting in June. As global economic activity softens, reduced demand combined with rising supply has driven prices lower.

Tech stocks

Microsoft topped the Magnificent 7 with a +11.1% gain in the week, after earnings beat Q3 estimates. It was cloud computing that performed particularly well, especially with more servers being brought into to service the demand for AI. Personal computing also performed well. Interestingly, it is reducing some of its own AI build out and said that it is "slowing or pausing some early-stage projects."

Microsoft celebrated its 50th birthday last month.

Meta Platforms gained +9.1%, as it also reported strong earnings as it pushes for AI leadership by increasing capex spending for developing its open-source large language models, namely Llama 3, expanding infrastructure to support these models, and building a real time AI assistant across Facebook, WhatsApp and Instagram.

Apple declined -1.9%, though its earnings beat estimates, on concerns that there will be a $900 million tariff-related cost in the current quarter. Also there is a 2% decline in China sales, which also caused concern.

ARM gained nearly 9% this week, mostly as a bounce back from large declines of nearly 30% earlier in the year (a technical rebound).

TSMC gained 9% after the world’s top chip manufacturer posted strong earnings.

🧭 Macro Watch: This Week’s Economic Developments

Here’s a quick roundup of this week’s key economic developments across major economies.

🇺🇸 United States

• April Jobs Report: The U.S. economy added 177,000 jobs in April, surpassing expectations of 133,000. The unemployment rate remained steady at 4.2%. Healthcare led job creation with 51,000 new positions, while federal employment declined by 9,000 due to ongoing efficiency measures. 

• Q1 GDP Contraction: The economy contracted by 0.3% in Q1 2025, marking the first decline in three years. The downturn was primarily attributed to a surge in imports ahead of anticipated tariffs, which negatively impacted net exports.
  
  [An increase in imports negatively impacts GDP, so how is GDP calculated?
  
  Here is the formula :
  
  GDP = C + I + G + (X − M)
  
  Where:

  C = Consumption

  I = Investment

  G = Government Spending

  X = Exports

  M = Imports ]
  

• Wage Growth and Inflation Implications: Average hourly earnings rose 0.3% month-over-month, keeping annual wage growth at 4.0%. While not accelerating, this remains above the level consistent with the Fed’s 2% inflation target. Looks there will be no imminent rate cuts.

🇪🇺 Eurozone

• GDP Growth: The euro area economy grew by 0.4% in Q1 2025, with notable contributions from Spain, Ireland, and Italy. Germany showed modest recovery, while France experienced sluggish growth due to reduced consumer and government spending.

• Inflation and Monetary Policy: Eurozone inflation held close to the European Central Bank’s target, leading to discussions on potential rate cuts to counteract tariff impacts.

🇬🇧 United Kingdom

• House Prices: UK house prices fell by 0.6% in April following the end of a stamp duty discount. Despite the monthly drop, prices remained 3.4% higher year-over-year.

• Economic Outlook: The Office for Budget Responsibility projects 1.0% GDP growth for 2025, slightly below the IMF’s forecast of 1.1%. Business activity indicators suggest potential challenges ahead, particularly concerning export orders affected by tariffs.

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🌐 Artificial Intelligence and Tech

This cover has been designed using assets from Freepik.com

Anthropic’s Claude took a major leap forward this week by rolling out app integrations, allowing users to connect it to tools like Slack, Notion, Google Drive, and others. Previously confined to generating responses in a text box, Claude can now fetch documents, summarize files, and complete tasks inside third-party platforms.

This shift positions Claude not just as a conversational assistant but as an autonomous workflow agent. The move mirrors OpenAI’s plugin model and marks another step toward AI becoming an interface layer across daily digital work.

OpenAI’s new licensing and infrastructure model has produced an unintended side effect: it’s enabling a new wave of Chinese AI startups. Developers are now using OpenAI’s tools as building blocks for hybrid large language models, combining OpenAI components with homegrown systems. This approach allows them to bypass full access restrictions while accelerating innovation.

Alibaba’s Qwen3 family of models made headlines as early benchmarks showed strong performance on multilingual tasks and long-context retention. While not yet competitive with OpenAI’s GPT-4 Turbo or Google’s Gemini Ultra in overall power, the gap is narrowing. Combined with strong domestic momentum in hardware and cloud compute, this positions Alibaba, and China more broadly, as a credible challenger to Silicon Valley’s LLM lead.

Google’s AMIE (Articulate Medical Intelligence Explorer) advanced beyond text inputs this week. It now supports image-based diagnostics, allowing it to interpret medical scans alongside patient notes and structured data. This evolution brings the system closer to functioning as a fully multimodal clinical assistant. While it remains in the experimental phase, it demonstrates the fast-moving potential of AI in healthcare, particularly in primary diagnosis and triage.

UK launched Europe’s first electron beam semiconductor lab, a milestone in reshoring advanced chip design. Focused on AI-specialized silicon, the lab aims to support early-stage prototyping and reduce reliance on Asia-based supply chains. The move also aligns with broader geopolitical shifts as countries push for technological sovereignty in critical sectors like chips and energy.

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🌐 Crypto Corner

Top 10 cryptos:

There has not been much price action this week in this normally volatile asset class.

Crypto news:

• Regulatory Measures: The UK’s Financial Conduct Authority (FCA) plans to ban retail investors from borrowing money to invest in cryptocurrencies, aiming to enhance consumer protection.

• Institutional Movements: MoonPay announced the opening of its new U.S. headquarters in New York City’s SoHo district, signaling a significant shift in the crypto industry’s relationship with NYC.

• Market Sentiment: Bitcoin’s dominance in the crypto market has reached 64%, the highest since 2021, signaling a focus on BTC over other cryptocurrencies. 

• Major Events: The Token2049 conference in Dubai drew over 15,000 attendees, including major figures in the cryptocurrency world, celebrating the industry’s resurgence following President Trump’s return to power. 

• Controversies: Concerns have emerged over President Donald Trump’s planned exclusive dinner at the White House for the top 220 investors in his cryptocurrency, $TRUMP, drawing criticism from both Democratic and Republican senators.

See the previous spotlight on Bitcoin halving

SPOTLIGHTS

Links to earlier spotlights :

US Reserves

Residential property ;

Japan ;

India - an emerging economic power ;

Recession ;

AI chips ;

Bitcoin halving ;

US National Debt ;

Gold ;

Nvidia ;

The $84 trillion wealth transfer ;

Crowdstrike issue