S&P 500 recovers half of tariff losses

Following initial concerns that the historically high tariff rates announced on 2 April would persist, a series of positive developments have suggested that the U.S. administration is softening its stance on trade. The 90-day pause on new tariffs was an important first step, although tit-for-tat hikes with China would still see the average tariff rate on imports rise sharply from around 2.5% last year to over 20%. More recently, reports indicated that the U.S. may cut tariffs on Chinese imports to de-escalate tensions, while China is considering easing tariffs on certain U.S. goods as cost pressures mount. Meanwhile, trade talks with South Korea and India have been described as making significant progress, and the White House has softened its tone toward China. Although uncertainty will likely linger until a major trade deal is secured, a potential peak in trade uncertainty and market volatility may already have passed. This has been reflected in the easing of the trade policy uncertainty index and the moderation of market volatility since early April, alongside Treasury yields retreating from their highs as worries over Fed independence have cooled.

The equity market has rebounded notably since the April tariff-pause announcement, with the S&P 500 climbing 10% from its lows, although it remains 10% below its February highs. Despite solid early earnings results, forward guidance has been cautious, reflecting concerns around consumer spending and trade uncertainty. Earnings growth estimates for the full year have moderated, but mid-single-digit gains remain achievable if the slowdown does not worsen. While a V-shaped recovery appears unlikely given lingering inflation and fiscal constraints, we do not expect a deep or prolonged downturn either, given the absence of major economic imbalances and the Fed's pivot to rate cuts. Global shares continue to perform well relative to U.S. shares. With Treasury yields falling and the bond market pricing in three rate cuts this year, markets are likely to remain rangebound in the near term, awaiting clearer developments on trade and broader economic growth.

Latest market and economic update

• Most Asian equities were mixed on Monday, with Japan’s Nikkei rising 0.5% and Toyota’s shares surging 5.5% after news of a potential buyout of its supplier, Toyota Industries. Meanwhile, Chinese equities remained subdued, as the Shanghai Composite and Shenzhen CSI 300 showed little movement, amid ongoing uncertainties surrounding U.S.-China trade talks and conflicting signals from both sides.

• U.S. equity futures edged lower ahead of the market open, with S&P 500 Futures down 0.4%, Nasdaq 100 Futures slipping 0.5%, and Dow Jones Futures also off by 0.4%, as investors remain cautious amid mixed signals surrounding U.S.-China trade talks. The market is also bracing for key earnings reports from major tech companies, which are likely to influence sentiment.

• European shares closed at a three-week high on Friday, with the STOXX 600 index rising 0.3% and gaining 2.7% over the week, driven by easing U.S.-China trade tensions. Key movers included Safran, which surged 4.2% after strong Q1 results, Siemens, up 3%, and Mapfre, which rose 8%, while Edenred saw a 9.8% drop following regulatory concerns in Brazil.

• The US dollar held steady at 99.695 against major currencies, remaining above last week's low of 97.923, while the euro traded at $1.1356, below its recent high. The dollar’s movement is closely tied to U.S. political developments, with expectations of solid job numbers potentially supporting its recovery from recent three-year lows.

• Oil prices fell slightly in Asian trade this morning, continuing last week's losses amid concerns over the ongoing U.S.-China trade war and plans by OPEC+ to increase production. Brent crude futures dropped 0.2% to $66.71 a barrel, while West Texas Intermediate remained flat at $62.91, with market uncertainty persisting over both trade talks and potential output hikes.

Equities on the move

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

• Huawei Technologies is set to test its advanced AI processor, the Ascend 910D, with sample batches expected by late May, aiming to create a domestic alternative to Nvidia’s H100 chip. This move comes as the company strengthens its AI hardware capabilities, despite ongoing U.S. trade restrictions, and seeks to counter tightened U.S. export controls on Nvidia’s products in China.

• Spotify plans to increase subscription prices by around €1 for individual plans in several European and Latin American countries, with the hike set to take effect as early as June, according to the Financial Times. However, the company has stated it will not adjust subscription rates in the U.S. this summer, with investors showing confidence in the strategy to boost international revenue.

• DoorDash has proposed a cash offer of 180 pence per share for Deliveroo, which the latter's board is likely to recommend, pending agreement on other terms. Deliveroo has granted DoorDash access to its due diligence, but has advised shareholders not to take any action, as there is no guarantee a firm offer will be made.

• Apple plans to shift the production of most of its iPhones sold in the U.S. to India by the end of 2026, accelerating its strategy to avoid potential higher tariffs in China. The company is in urgent talks with contract manufacturers Foxconn and Tata to meet this goal, despite the higher manufacturing costs in India compared to China.

• AbbVie raised its full-year profit forecast to between $12.09 and $12.29 per share, driven by strong sales of its immunology drugs, despite concerns over potential tariffs in the pharmaceutical sector. The company also plans significant investment in U.S. manufacturing, including building new plants, while pushing its immunology drugs Skyrizi and Rinvoq to offset a decline in Humira sales.

• Colgate-Palmolive surpassed Wall Street’s expectations for quarterly results and raised its annual sales forecast, attributing the positive outcome to price hikes and higher advertising spend. The company plans further price increases to mitigate the impact of tariffs and higher costs, expecting tariffs to raise its 2025 cost of goods sold by around $200 million.

• BYD’s first-quarter profit surged 100.4% year-on-year to 9.2 billion yuan, driven by strong sales and its aggressive pricing strategy in China’s competitive electric vehicle market. The company is also targeting 800,000 vehicle exports this year while refining its European operations, amid growing competition from rivals like Leapmotor, Geely, and Toyota.

• Safran reported stronger-than-expected first-quarter revenues, driven by engine spares and services, and reaffirmed its full-year targets. The company is studying ways to manage the impact of global trade tensions, including applying a tariff surcharge to customers, while continuing to show strong momentum in its civil and defence businesses.

• Citi reinstated coverage of Siemens with a Buy rating, highlighting its leadership in industrial AI and automation, and its strong software portfolio as a competitive advantage. Despite some cyclical concerns, Citi remains optimistic about Siemens' long-term prospects, suggesting the company should fully divest its stake in Healthineers to enhance financial performance.

• KeyBanc Capital Markets upgraded Lowe’s to Overweight, citing the retailer's strong cash flow, solid balance sheet, and progress with its Pro customer base after its acquisition of Artisan Design Group. Analysts see a 20% upside potential over the next year, with further gains possible as the home improvement market recovers and Lowe’s expands its addressable market by around $50 billion.

• Citi initiated coverage of Super Micro Computer with a Neutral rating and $39 target price, citing its strong position in AI infrastructure but highlighting increasing competition and margin pressures from Dell. While acknowledging growth in AI server demand, Citi noted concerns around customer concentration, performance, and tariff risks, with shares below their historical valuation.

• Bank of America maintained its Buy rating on Nike, stating that concerns over China and tariffs are reflected in the equity's pullback, and that the company’s diversified supply chain helps mitigate risks. Although BofA lowered its price target to $80, it remains optimistic about growth, noting any tariff impact can be managed with a modest price increase.

• Morgan Stanley upgraded Volkswagen to Equal-weight, citing opportunities for value creation through cost reduction and becoming more asset-light, despite ongoing challenges. The bank downgraded Renault to Equal-weight, believing its recent margin outperformance is priced in and warning that reduced tariffs on Chinese electric vehicles could benefit German automakers more.

Upcoming data and events

The upcoming week will be a crucial test for U.S. equities, with earnings from Apple, Microsoft, Amazon, and Meta, alongside key data such as the U.S. jobs report and first-quarter GDP. Inflation data and reports from companies like Procter & Gamble and PepsiCo will also shed light on the impact of trade tensions and tariffs.