Powell hawkish comments weigh on markets

General market commentary

U.S. equity markets ended sharply lower on Wednesday, driven primarily by a downturn in the technology sector, coupled with hawkish remarks from Federal Reserve Chair Jerome Powell. The market was particularly rattled by the announcement from semiconductor giant NVIDIA, which revealed it would take a significant charge of up to $5.5 billion due to the U.S. government's new export restrictions on its chips to China. This, along with Powell's economic outlook, which highlighted the inflationary pressures from recently imposed tariffs, led to a risk-off sentiment across markets. The S&P 500 and the Nasdaq Composite saw declines of 2.2% and 3.1%, respectively, while bond yields also fell in response, with the 10-year Treasury yield dipping to 4.28%. On the commodity front, West Texas Intermediate crude oil saw a modest rise of 2.2%, and precious metals like gold surged by 3.5%, signalling a flight to safety amidst the uncertainty.

Meanwhile, consumer spending data provided a more optimistic outlook, with retail sales in March surpassing expectations and rising by 1.4%, driven largely by increased spending on motor vehicles. Despite this, the consumer sentiment index has recently fallen to its lowest point since June 2022, signalling caution amidst rising tariffs and an uncertain economic backdrop. Earnings season is also well underway, with strong results from major U.S. banks suggesting resilience in the financial sector. Analysts expect a 7% increase in S&P 500 earnings for the first quarter, with technology and healthcare sectors likely to lead the way. However, there is concern that ongoing tariffs could suppress corporate profit margins, potentially dampening earnings growth over the course of the year. If tensions ease, though, the U.S. government may pivot towards pro-growth policies like tax reform and deregulation, which could provide a positive catalyst for equities in the latter half of 2025.

Latest market and economic update

Asian equities mostly advanced on Thursday, defying Wall Street's sharp losses after Fed Chair Jerome Powell warned trade tensions could hinder inflation control and economic growth. Gains were led by Hong Kong’s Hang Seng Index, up 1.62%, while Japan’s Nikkei rose 0.87% and South Korea’s Kospi added 0.76%, though India’s Nifty 50 and Sensex dipped slightly at the open.

US equity futures were steady overnight following a sharp selloff, with investors focused on rising trade tensions and cautious comments from Federal Reserve Chair Jerome Powell. The market is likely to remain volatile as traders assess the impact of escalating tariffs and the uncertainty surrounding future interest rate decisions.

European markets closed lower on Wednesday, led by declines in semiconductor shares following ASML’s warning about U.S. tariffs and Nvidia’s $5.5 billion charge. The STOXX 600 index dropped 0.2%, with a 2% fall in the technology sector, while oil and gas companies helped mitigate losses, and Heineken rose after surpassing sales expectations.

The US dollar index rose above 99.5 on Thursday, rebounding from earlier losses as investors reassessed the Federal Reserve’s policy stance amid trade tensions. Against this backdrop, the euro traded at $1.1367, with markets weighing Fed Chair Powell’s warning that tariffs could stoke inflation and delay interest rate cuts.

The yield on the U.S. 10-year Treasury note held steady above 4.3% on Thursday, following three days of declines, as investors balanced Federal Reserve policy signals with trade tensions. Fed Chair Jerome Powell's remarks on tariffs and inflation, alongside stronger-than-expected retail sales in March, kept sentiment cautious as investors awaited potential US-China trade talks.

Oil prices rose this morning amid concerns over tighter supply due to new U.S. sanctions on Iran and potential output cuts by OPEC+ members. Despite reduced oil price and demand growth forecasts from OPEC, the IEA, and major banks, prices found support from hopes of progress in U.S.-China trade talks, with prices up more than 2% for the week.

U.S. President Donald Trump described "big progress" in trade talks with a Japanese delegation on Wednesday, as the two nations began formal negotiations to resolve U.S. tariff tensions. Led by Japan's Economic Minister Ryosei Akazawa, the talks aim for a deal before the 90-day tariff pause expires, with Japan seeking a swift agreement on export tariffs, particularly automobiles.

Ukraine and the United States have made "substantial progress" in talks over a minerals deal, with plans to sign a memorandum in the near future, according to Ukrainian First Deputy Prime Minister Yulia Svyrydenko. The deal aims to boost economic growth for both countries, though further work is needed before a final agreement can be ratified by Ukraine’s parliament.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

ASML reaffirmed its annual guidance despite warning that recent tariff announcements have increased uncertainty for 2025 and 2026, while AI demand remains a strong growth driver. First-quarter net bookings missed forecasts, and second-quarter sales guidance fell short of analyst expectations, sending shares down 5.2%.

Heineken reported better-than-expected first-quarter sales and maintained its annual guidance, despite warning of ongoing volatility due to global tariff uncertainty. The company saw strong growth in key markets like Vietnam and increased sales of premium brands, but cautioned that weak consumer sentiment, inflation, and currency fluctuations remain risks for the rest of the year.

Rheinmetall CEO Armin Papperger stated that the company could expand its order book to as much as €300 billion by 2030, driven by Europe's increased defence spending and efforts to counter Russia. He also mentioned ongoing discussions with Volkswagen regarding repurposing its Osnabrück plant for defence production, although he warned that an agreement should not be anticipated in the near future.

Shares of Hertz surged 56% during normal trading and an additional 34% in after-hours following Bill Ackman’s Pershing Square Capital Management revealing a stake of 12.7 million shares worth approximately $46.5 million. The investment, seen as a strong vote of confidence, sparked optimism about Hertz's future performance and growth potential.

Lyft has agreed to acquire mobility app FreeNow for €175 million as part of its strategy to expand in Europe and diversify revenue streams amid intense competition with Uber in the U.S. The deal, valued at approximately $197 million, will see FreeNow continue operating across 150 European cities, with the transaction expected to close in the second half of 2025.

BNP Paribas downgraded Tesla’s outlook, cutting its 2026 earnings estimate by 38% and lowering its price target to $137, citing softening demand, rising costs, and challenges from U.S.-China tensions and potential loss of EV tax subsidies. Similarly, Piper Sandler reduced its price target to $400, highlighting expectations of a weak first-quarter report but maintaining a positive long-term view, driven by Tesla's full self-driving and AI ambitions.

Morgan Stanley reduced its price target for Microsoft to $472 from $530, citing weakening demand and slowing growth in key areas like Azure and Microsoft 365, though it maintained an "Overweight" rating. Despite near-term challenges, the analysts remain optimistic about Microsoft's long-term positioning in GenAI and see an attractive risk-reward profile at current levels.

TD Cowen downgraded LVMH to Hold from Buy and cut its price target to €500 from €840, citing global macroeconomic pressures and weakening discretionary spending in key markets like China and the U.S. The firm expects declining sales in Fashion & Leather Goods, margin pressures from brand investment, and slower growth across segments including Dior and Sephora.

Mizuho upgraded Cloudflare to “Outperform,” citing strong sales momentum, growing adoption of its Workers AI product, and potential for growth reacceleration in 2025. Despite lowering its price target to $135 from $140 due to sector-wide multiple compression, Mizuho sees Cloudflare well-positioned in the expanding AI market, benefiting from its scalable architecture and strong adoption in areas like cybersecurity.

Morgan Stanley upgraded the U.S. defence sector, highlighting expectations of a $1 trillion budget and rising arms exports, with Northrop Grumman as its top pick. It also raised price targets for Lockheed Martin and Northrop Grumman, while downgrading General Dynamics due to tariff exposure and federal contract risks.

Upcoming data and events

Today's economic data includes trade balance adjustments, March PPI, and the ECB interest rate decision in the Eurozone. In the United States, key data includes building permits, housing starts, initial jobless claims, and the Philadelphia Fed business outlook. On the earnings front, results are due from TSMC, Netflix, Hermes, L’Oréal, and others.

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