Decode Weekly Markets Recap: Highlight and Insights on third week of May

U.S

Volatility Rises Amid Debt Concerns and Trade Tensions

U.S. equity markets ended the week in the red, dragged down by surging Treasury yields and renewed trade frictions. The Nasdaq Composite led relative outperformance, falling 2.47%, while the S&P 500 and Dow Jones both slipped into year-to-date losses. Small- and mid-cap indexes were hit hardest. U.S. markets will remain closed on Monday for Memorial Day.

Midweek turbulence followed a disappointing 20-year Treasury auction, which pushed the 30-year yield to a new high since 2023. Yields spiked in response to Moody’s recent downgrade of U.S. sovereign debt, citing concerns over rising deficits. The selloff deepened after the House approved President Trump’s tax bill, fueling fears of ballooning federal debt.

On Friday, equity losses accelerated as Trump unveiled a sweeping 50% tariff on EU imports effective June 1, and threatened a 25% levy on iPhones unless Apple relocates production to the U.S., triggering a more than 3% drop in its shares.

U.S. Economic Indicators: Services Rebound but Price Pressures Mount

After a sluggish April, U.S. business activity rebounded in May. The S&P Global Flash PMI showed services climbing from 50.8 to 52.3, while manufacturing rose to a three-month high of 52.3. Although sentiment remained cautious, it improved notably—helped by a pause in further tariff escalation.

However, inflationary pressures persisted, with prices rising at their fastest pace since August 2022, largely due to tariffs. Export demand weakened and supply chain delays worsened. Some firms reportedly accelerated purchases to get ahead of future trade restrictions.

Housing: Mixed Signals

In April, existing home sales dipped 0.5% to a 4 million annualized pace—marking the weakest April since 2009—despite prices climbing for the 22nd consecutive month to $414,000. NAR’s chief economist cited rising mortgage rates and latent demand.

Conversely, new home sales surged to 743,000 units in April—well above the 690,000 consensus—while the median new home price slipped 2% year-over-year to $407,200.

L'Europe

Sentiment Sours Amid Trump’s Tariff Threat

European equities broke a five-week winning streak as the STOXX Europe 600 dipped 0.75%. Germany’s DAX fell 0.58%, France’s CAC 40 dropped 1.93%, and Italy’s FTSE MIB slumped 2.90%. The UK’s FTSE 100 stood out with a modest 0.38% gain.

The Eurozone Composite PMI fell below the expansion threshold to 49.5, driven by a contraction in services and ongoing weakness in France and Germany. In response to heightened uncertainty, the European Commission slashed its 2025 growth forecast from 1.3% to 0.9%, citing rising trade frictions.

Germany revised Q1 GDP sharply higher to 0.4%, its fastest growth pace since Q3 2022, helped by stronger household consumption and net exports.

The UK posted mixed data: Inflation rose to 3.5% in April—above expectations—while retail sales beat forecasts, jumping 5.0% year over year. However, PMI readings signaled that private sector activity remained weak.

Japon

Tightening Signals Push Yields Higher

Japanese markets retreated, with the Nikkei 225 down 1.57% and the TOPIX off 0.18%. Traders grew more confident in a rate hike by the Bank of Japan after inflation data showed persistence. The 10-year government bond yield surged to 1.55%, a 17-year high.

Core inflation rose to 3.5%—its highest since early 2022—while machinery orders posted a surprise 13% gain in March. Yet, services growth moderated and manufacturing activity shrank in May. Meanwhile, Japanese officials lobbied Washington for broader tariff exemptions as trade talks resumed.

Chine

Mixed Recovery as Retail Lags

China’s onshore benchmarks slipped, with the CSI 300 down 0.18% and the Shanghai Composite off 0.57%. The Hang Seng Index in Hong Kong gained 1.10%.

April’s industrial output beat expectations with 6.1% annual growth, signaling resilience. However, retail sales disappointed, rising just 5.1%, while fixed asset investment slowed to 4% year-to-date, dragged down by weak property spending.

Economists expect Beijing to deploy fiscal stimulus in stages to buffer tariff impacts and support consumer sentiment.

Emerging Markets: Political and Policy Developments

Romania

Bucharest Mayor Nicușor Dan secured a decisive win in the presidential election, defeating far-right rival George Simion. Despite the political relief, analysts warned that Romania’s fragile fiscal position may prompt credit downgrades if lawmakers fail to stabilize the deficit.

Mexique

The central bank cut its benchmark rate by 50 basis points to 8.50%, citing soft domestic growth and easing inflation. Policymakers hinted at more cuts of similar size, while maintaining a restrictive bias to curb inflationary risks.