Equities resume decline as trade war worries persist

General market commentary

US equity markets ended Thursday sharply lower as investor sentiment deteriorated amid escalating trade tensions between the United States and China. The Nasdaq Composite fell 4.3% to 16,387.3, the S&P 500 dropped 3.5% to 5,268.1, and the Dow Jones Industrial Average declined 2.5% to 39,593.7, giving back much of Wednesday’s strong gains. Losses were led by technology, energy and consumer discretionary shares, while consumer staples managed to outperform slightly towards the close. Market nerves were heightened after President Donald Trump increased tariffs on Chinese imports to 145%, while offering a 90-day pause on new duties for most other trading partners. In response, Beijing announced restrictions on the number of American films allowed in China, sending US entertainment equities lower.

Investors looked past encouraging economic data, including a 0.1% drop in consumer prices during March—the first monthly decline since May 2020—largely driven by falling energy prices. Core CPI eased to 2.8%, down from market expectations of 3.0%, signalling further moderation in inflation pressures. Despite concerns over rising import costs due to tariffs, long-term inflation expectations remain well-anchored, with bond markets pricing in an average inflation rate of 2.27% over the next decade. Weekly jobless claims edged slightly higher to 223,000 but continued to reflect a broadly healthy labour market. With wage growth still outpacing inflation and unemployment remaining low, consumer spending is expected to provide ongoing support to the US economy.

Latest market and economic update

• Asian equity markets declined on Friday, with Japan’s Nikkei 225 sliding as much as 5%, leading regional losses amid renewed U.S.-China trade tensions that overshadowed the temporary relief from delayed U.S. tariffs. Chinese equities outperformed their peers, cushioned by state-backed buying and growing expectations of additional stimulus, while broader markets across South Korea, Singapore, and Australia also moved lower.

• US equity futures pointed to a lower open later today, following a volatile week marked by significant market swings driven by ongoing trade uncertainty. Key market drivers for the session include Friday’s U.S. consumer sentiment data and quarterly earnings reports from major financial institutions such as JPMorgan Chase, Morgan Stanley, Wells Fargo, and BlackRock.

• Major European markets surged on Thursday, with the STOXX 50 rising 4.4% and the STOXX 600 up 4%, following tariff suspensions from both the EU and the U.S. Key sectors driving the rally included banking, technology, and industrial shares, as investors welcomed the easing of trade tensions and the potential for reduced inflationary pressures.

• The yield on the 10-year U.S. Treasury note climbed towards 4.5% on Friday, on track for its biggest weekly gain in three years as foreign investors sold off U.S. debt amid growing concerns over trade policies. The escalation of the trade war, particularly the U.S. raising tariffs on Chinese imports to 145%, has heightened fears of further economic disruption.

• The US dollar slumped on Friday as investors lost confidence in the U.S. economic outlook, prompting a broad shift into safe-haven assets such as the Swiss franc, yen, euro, and gold. The euro surged as much as 1.7% against the greenback to reach $1.13855, its highest level since February 2022, as markets interpreted President Trump’s tariff pause as a sign of broader systemic risk.

• Oil prices declined in Asian trading, nearing four-year lows, as escalating U.S.-China trade tensions fuelled concerns over weakening global demand and pushed Brent and WTI towards a second consecutive weekly loss of around 3.7%. The U.S. Energy Information Administration cut its demand and price forecasts through 2026, citing growing economic uncertainty driven by trade-related pressures.

Equities on the move

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

• Prada has agreed to buy Versace from Capri Holdings for $1.38 billion, aiming to boost revenues by expanding its customer base and leveraging the iconic fashion brand's bold designs. The acquisition marks a strategic shift for Prada, which has historically avoided major deals, and reflects the growing influence of Lorenzo Bertelli, who is expected to become the company’s future CEO.

• TSMC's first-quarter revenue surged 42%, slightly surpassing market expectations, driven by strong demand for AI chips. Despite a hit from a January earthquake, the company remains a major beneficiary of AI advancements, with its shares rising following a U.S. tariff pause, although it still faces challenges from ongoing trade tensions.

• Tesla announced on Thursday the launch of a new version of its Cybertruck in the United States, priced at $69,990. According to the company’s website, the long-range variant is the most affordable of the three models currently available in the U.S. market.

• U.S. Defence Secretary Pete Hegseth has ordered the termination of $5.1 billion worth of IT services contracts with companies like Accenture and Deloitte, citing the non-essential nature of these third-party services. The move is expected to result in nearly $4 billion in savings, as Pentagon employees can perform the services internally.

• Oklo Inc. has been chosen to supply microreactor power systems to the U.S. Department of Defence as part of the Advanced Nuclear Power for Installations (ANPI) program. This selection allows Oklo to compete for awards that will help deploy microreactor technology at military bases.

• A Harley-Davidson director resigned after expressing concerns over the company's culture and leadership, particularly due to senior departures and remote work policies. His resignation, which followed a dispute over the board's decision on CEO succession, came as the company's shares fell 9% and it struggles to appeal to younger riders.

• Country Garden reached a restructuring agreement with a key bondholder group representing 30% of its $10.3 billion offshore bond debt, as it seeks to reduce $14.1 billion in total offshore liabilities by 78% ahead of a Hong Kong court hearing on 26 May. Chairperson Yang Huiyan will support the plan by converting a $1.15 billion shareholder loan and investing further in the company, while the developer urges wider creditor support by 23 May to avoid liquidation.

• Lynx Equity Strategy named Nvidia its top semiconductor pick, citing the company's strategic tariff mitigation plans, which protect it from potential supply chain disruptions. The firm set a price target of $140 for Nvidia, expecting the equity to reach recent highs despite concerns over data centre spending and competition, with a favourable position in the current tariff environment.

• Morgan Stanley downgraded U.S. cruise sector forecasts, citing the weakest demand in three years, and lowered earnings and price targets for major companies, with Carnival's target reduced to $21 and Royal Caribbean's to $220. The firm upgraded Carnival to "Equal-weight" but maintained a cautious outlook for the sector, favouring Royal Caribbean for its higher margins and lower leverage, while warning that potential U.S. policy changes could further hurt earnings.

• HSBC upgraded Palo Alto Networks to "Hold" from "Reduce," citing strong cybersecurity demand amid macroeconomic uncertainty and a more reasonable valuation. However, the firm maintains Fortinet as its top cybersecurity pick due to stronger earnings growth and better valuation, with a target price for Palo Alto implying a 9.8% downside from current levels.

• Morgan Stanley upgraded AppLovin to "Overweight" from "Equal-weight," raising its price target to $350, driven by strong execution, market share gains in in-app advertising, and a favourable risk-reward outlook. Despite lowering its 2025 and 2026 EBITDA estimates, the firm sees AppLovin’s resilience and growth potential in both gaming and non-gaming ad sectors, particularly ecommerce, making the recent share price decline a buying opportunity.

• Macquarie upgraded Atlassian Corp to "Outperform" from "Neutral," raising its 12-month price target to $270, citing strong cross-departmental adoption, near-term revenue catalysts, and a more attractive valuation. The firm highlighted Atlassian's AI-led innovations, growing customer interest beyond software development, and the launch of the Teamwork Collection, which could drive further enterprise-wide adoption and productivity.

• Raymond James upgraded Deckers Outdoor Corporation to "Strong Buy" from "Outperform," citing a compelling entry point following a recent selloff and expecting a fourth-quarter earnings beat with steady guidance for fiscal 2026. The firm set a $150 price target, highlighting long-term growth potential for brands like HOKA and UGG, while noting tariff risks and the company’s strong balance sheet as key factors supporting its outlook.

Upcoming data and events

Today's economic calendar in the US features the release of the Producer Price Index and the University of Michigan Consumer Sentiment Index. Federal Reserve Bank of New York President John Williams is also scheduled to speak, potentially shedding light on the Federal Reserve's monetary policy outlook.

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