Dollar drops as Trump threatens Fed independence

General market commentary

Equity markets were mixed on Thursday, with the S&P 500 and Russell 2000 posting modest gains, while the Dow and Nasdaq closed slightly lower. The Dow was dragged down by a sharp 22% decline in UnitedHealth Group shares after the company reported weaker-than-expected Q1 earnings and cut its 2025 guidance. The Nasdaq also slipped as Nvidia saw price target reductions from brokerages, adding further pressure to the tech sector. On the other hand, energy and consumer staples led the S&P 500 higher, while healthcare and technology lagged. Bond yields edged higher, with the 10-year Treasury yield rising to 4.33%, although March housing starts were disappointing, and manufacturing activity in the Mid-Atlantic showed signs of contraction. For the shortened holiday week, the Dow and Nasdaq both lost around 2.6%, while the S&P 500 dropped 1.5%.

Investor sentiment remained cautious as markets digested ongoing trade talks and concerns over interest rates. The S&P 500 saw a slight 0.1% gain, helped by strong performances from Eli Lilly and Apple, while the Dow suffered a 527-point drop. President Trump’s comments on progress in trade talks with Japan and his push for a deal with China added to the uncertainty, compounded by his renewed criticism of Fed Chair Jerome Powell and calls for rate cuts. Despite a drop in weekly jobless claims pointing to a resilient labour market, the week ended with mixed sentiment, as traders remained focused on the direction of tariffs and monetary policy.

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Asian equities showed a mixed performance on Monday, with China's CSI 300 up 0.15% after the central bank kept interest rates unchanged, while Japan's Nikkei 225 fell 1.33% and South Korea's Kospi dropped 0.16%. Indian indices saw gains, with the Nifty 50 rising 0.56% and the Sensex up 0.73%, while markets in Australia and Hong Kong were closed for the Easter holiday.

US equity futures dropped overnight as markets reopened after the holiday weekend, with ongoing trade concerns, particularly the lack of direct US-China negotiations, continuing to weigh on investor sentiment. The cautious outlook was compounded by a warning from Chicago Fed President Austan Goolsbee about potential economic slowdown due to tariffs, alongside anticipation for a busy earnings week with major reports from companies like Tesla, Alphabet, and Boeing.

European shares edged lower on Thursday after the European Central Bank cut interest rates for the seventh time over the past year, aiming to support a struggling economy amid ongoing trade uncertainty. Despite a dip in shares like Hermes and LVMH following disappointing earnings, the STOXX 600 posted a 4% weekly gain, with energy shares buoyed by rising crude oil prices.

The US dollar index fell to a three-year low of around 98.6 on Monday, as concerns over the Federal Reserve’s independence and escalating trade tensions under the Trump administration weighed on sentiment. The dollar weakened significantly against major currencies, with EUR/USD trading at 1.1518, reflecting a sharp decline against the euro.

Oil prices fell nearly 2% this morning, as progress in nuclear talks between the US and Iran eased supply disruption fears, while a temporary ceasefire between Russia and Ukraine further reduced oil’s risk premium. Brent crude dropped to $66.76 per barrel, and WTI fell to $62.82, with both contracts having gained over 3% on Thursday, before the holiday weekend.

According to the latest CNBC All-America Economic Survey, President Trump's economic approval ratings have hit a record low, with 55% of Americans disapproving of his handling of tariffs, inflation, and government spending. Despite his weakening economic standing, there has been no significant shift in congressional preference, with Democrats still slightly ahead in the race for control of Congress.

Equities on the move

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

Netflix reported first-quarter revenue of over $10.5 billion, surpassing analyst expectations, and noted that consumer behaviour has remained stable despite market turbulence, easing Wall Street concerns. With over 300 million global subscribers and strong demand for its lower-priced, ad-supported tier, Netflix's shares rose 3.5% after hours, bringing its year-to-date gain to around 9%, outpacing the S&P 500’s 10% decline.

UnitedHealth Group's shares plunged more than 20% on Thursday after the company reported its first earnings miss since 2008 and cut its full-year forecast due to unexpectedly high medical costs and issues in its Optum business. The news, linked to rising demand for healthcare services and Medicare funding cuts, sent shockwaves through the sector, affecting other health insurers as well.

L'Oréal's first-quarter sales rose 3.5%, exceeding expectations, driven by strong demand for creams and perfume in Europe, although U.S. sales fell due to weak makeup demand. Despite challenges in North America and trade tensions, the company reported better-than-expected performance in China and maintained its global growth forecast.

Hermès plans to fully pass on the impact of U.S. tariffs to its wealthy customers by increasing prices across all product lines in the United States from May 1, following first-quarter sales that slightly missed market expectations. Despite a slowdown in China, the brand's performance was better than its peers, with strong growth in Europe and the U.S., although concerns about geopolitical uncertainty and tariffs persist.

American Express exceeded Wall Street's first-quarter profit expectations, driven by continued spending on travel and entertainment by affluent customers, and maintained its 2025 revenue and profit forecasts despite economic uncertainties. The company reported a 6% increase in profit to $2.58 billion, while revenue rose 8% to $16.97 billion, though shares have fallen by 8% since the tariffs were announced in April.

State Street reported a 39% increase in first-quarter profit, driven by lower expenses and higher fees from managing client assets, with assets under custody rising 6% to $46.7 trillion. However, the bank faces challenges from market turmoil and uncertainties around U.S. trade policy, with analysts expecting a larger impact on fee income in the second quarter; its shares have dropped 19% this year, underperforming the S&P 500 index.

Tesla's plans for an affordable, U.S.-made version of its Model Y have been delayed, with production now expected to begin later than initially planned, possibly in late 2023 or early 2024. The new, lower-cost Model Y is aimed at boosting sales, with a target of 250,000 units in the U.S. by 2026, though global rollouts in China and Europe will follow at a later date.

Eli Lilly’s shares rose over 14% last Thursday following promising Phase 3 trial results for orforglipron, an oral diabetes medication that demonstrated similar efficacy to Novo Nordisk’s Ozempic in lowering blood sugar and promoting weight loss, with patients losing up to 16 pounds. The drug, dubbed "Ozempic in a pill," is poised to become a major competitor in diabetes and weight-loss treatment, with Lilly planning to seek regulatory approvals by the end of the year.

Uber is reportedly in talks to acquire Trendyol Go, a Turkish food and grocery delivery platform, although the terms and final outcome of the deal remain uncertain. Trendyol Go is owned by Trendyol Group, a major Turkish e-commerce platform, with Alibaba holding the majority stake in the group.

Ford has halted shipments of its SUVs, pick-up trucks, and sports cars to China due to retaliatory tariffs as high as 150%, though exports of engines and transmissions will continue. The move is part of broader challenges faced by U.S. automakers dealing with President Trump's fluctuating tariffs, which are expected to raise vehicle prices and impact profits.

Bill Ackman’s Pershing Square hedge fund confirmed taking a 20% stake in Hertz, with Ackman suggesting a potential partnership between Hertz and Uber to enhance vehicle utilisation and profitability. He also shared his optimism about Hertz’s long-term prospects, projecting a valuation of $30 per share by 2029, driven by operational improvements and favourable market conditions.

BMO Capital Markets downgraded Novo Nordisk to "Market Perform" and reduced its price target to $64, citing Eli Lilly's growing lead in the obesity drug market with its oral GLP-1 drug orforglipron and stronger demand for tirzepatide. The downgrade reflects concerns over Novo's lack of an oral small-molecule strategy and ongoing supply issues with semaglutide, which may have permanently shifted physician preference towards Lilly's treatments.

Bank of America has lowered its price target for TSMC due to increased demand uncertainties linked to tariffs, reducing its 2026 and 2027 earnings estimates by 4.8% and 5.2%, respectively, while maintaining a Buy rating. Despite the downgrade, BofA remains optimistic about TSMC's long-term growth, particularly driven by strong AI demand and its U.S. fab expansion, though it cautions that overseas expansion could lead to cost pressures.

Citi upgraded Schneider Electric to Buy from Neutral, citing an attractive valuation after a recent stock price de-rating, and maintaining a positive long-term outlook despite potential short-term challenges. While revising down its 2025 and 2026 EBITA forecasts and trimming its price target to €245, Citi expects the company to achieve positive organic sales growth, supported by a strong data centre backlog and stable margins through 2026.

Upcoming data and events

The week ahead is likely to see continued volatility across all asset classes as uncertainty over US tariff policies persists, with key earnings reports from companies like Alphabet, Tesla, Boeing, and SAP dominating the headlines. Economic data including flash PMI readings from major global economies, as well as US durable goods orders and home sales, will provide insights into the initial impacts of tariff threats, while the PBoC is expected to hold China's loan prime rates steady.

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