
MARKETS REVIEW 22nd April 2025
MARKETS REVIEW 22nd April 2025

Summary
US equities fell sharply last week, down 1.5% in dollar terms and down 3% in sterling, with tech underperforming as the dollar weakened
The 'dollar frown' reflects a rare combination of US equity underperformance and dollar weakness, suggesting markets are reassessing US exceptionalism
US hard data remains strong - jobless claims are low, manufacturing is improving and retail sales remain firm; soft data has collapsed, with business confidence at COVID-19-era lows
UK equities rose 3.9% after inflation surprised to the downside; gilt (UK government bonds) yields fell, supporting a sharp rally in rate-sensitive sectors like real estate and utilities
The European Central Bank (ECB) cut interest rates by 0.25% and signalled a more dovish stance, paving the way for further easing; markets expect another cut in June
European and UK markets are now positive year-to-date, with signs that recent volatility may be giving way to a more stable environment for home markets.
Market review
The ‘dollar frown’
The US Dollar tends to strengthen both during periods of market stress and US economic outperformance. This is known as the ‘dollar smile theory’ and from an international investor’s perspective, dollar strength during equity market pain helps partially offset losses making US equities more attractive during selloffs.
What we’ve seen recently looks more like a dollar frown: US equities have underperformed and the dollar has simultaneously weakened, accentuating the losses in US equities. Last week US equities underperformed sharply falling 1.5% in dollar terms and down 3.0% in sterling terms. Tech was once again the weakest sector falling 5.2% in GBP terms.
This USD dynamic occurred as broader risk assets found their footing, a sign that markets may be reassessing the US’s relative position in a changing macro landscape. Could the tide of US exceptionalism finally be receding?
Economically, the hard data in the US still looks robust. Initial jobless claims remain historically low, manufacturing output is improving, vehicle sales are rising and retail spending remains firm, particularly among more affluent households. Some of this strength may reflect a ‘pull forward’ in activity ahead of expected tariffs, but for now, the data suggests the US economy is holding up.
The real weakness has been in the soft data: consumer and business sentiment has collapsed. Last week, the Philadelphia Fed Business Outlook Index plunged 39 points to -26.4 - a level not seen since the depths of the pandemic. If confidence remains depressed, it may begin to weigh on activity and feed into the hard data in the coming weeks and months.
Back across the pond
The mood was brighter across the pond, as UK and European equities found support from falling inflation and looser policy. UK equities rose 3.9%, helped by a larger-than-expected drop in inflation, with CPI slowing to 2.6% year-on-year. Gilt yields fell in response, with the 10-year dropping 0.16% to 4.57%. That move helped fuel a rally in rate-sensitive sectors, with real estate and utilities up 7.2% and 5.9% respectively. Energy also outperformed, rising 6.4% alongside a rebound in oil prices.
European equities rose 1.9% in sterling terms as the ECB delivered a widely anticipated 0.25% rate cut. More notable was the shift in tone: the ECB dropped the phrase “policy is becoming meaningfully less restrictive” and acknowledged growing risks to demand, especially considering trade policy uncertainty. With inflation pressures having largely receded, the path is now open for further cuts. Markets are pricing a 92% chance of another cut at the next meeting in June.
Both European and UK equity markets are now in positive territory for the year and with strong performance across bonds and equities last week and although risks remain there’s a sense that the worst of the volatility may be behind us.
The week ahead
Wednesday: The Federal Reserve (Fed) beige book
Our thoughts: The Fed’s beige book is a summary of anecdotal information about current economic conditions. It’s published eight times a year and gathers qualitative insights from business leaders, economists, and market participants in each region. It offers on-the-ground colour to complement the hard economic data the Fed already uses. It helps inform the Federal Open Market Committee’s discussions ahead of their policy meetings. Because it's anecdotal, it doesn’t move markets the way hard data can, but it offers clues into the Fed's evolving thinking.
Friday: Tokyo inflation
Our thoughts: Tokyo inflation is anticipated to rise sharply, mostly driven by base effects. Nonetheless rising inflation in Japan supports the case for further withdrawal of stimulus and rate hikes. Swap markets place a 60% probability that the Bank of Japan hikes again this year, the current target rate in Japan in 0.5%.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable. Past performance and future forecasts figures are not a reliable indicator of future results.