Key takeaways
- U.S. recession risks rise
- Some positive developments in the trade war
- Market volatility eases
On the latest edition of Market Week in Review, Senior Director and Chief Investment Strategist for North America, Paul Eitelman, discussed what the latest U.S. economic data suggests about recession chances. He also provided an update on the trade war and recent decisions from central banks.
Data-driven
Eitelman began by assessing the health of the U.S. economy through hard and soft data. He explained that hard data refers to measures of actual spending and economic activity, while soft data refers to how companies and consumers respond to surveys.
“The theme of hard hard data and soft soft data continued this week,” Eitelman said. He explained that the latest hard data, like U.S. initial unemployment claims and retail sales, was largely positive. “Initial jobless claims fell to 215,000 for the week ending April 12, while retail sales in March were healthy—with a bounce-back in some discretionary categories like restaurants,” he said.
Meanwhile, on the soft data side, the latest manufacturing surveys from the Federal Reserve Banks of New York and Philadelphia were disappointing. In particular, both showed notable declines in capital expenditure plans, Eitelman noted.
All told, he said the risk of a U.S. recession this year is a close call, at about 40%. “The economic outlook will hinge heavily on policy decisions in the weeks ahead,” Eitelman stated.
Positive signs
Eitelman said there have been some recent positive developments on the trade front. For starters, the Trump administration recently announced a temporary exemption on electronics imported into the United States. In addition, President Trump signalled he’s looking at helping automakers who need more time adjusting to tariffs and also said “big progress” was made in trade negotiations with Japan.
On the flip side, the U.S. recently announced more stringent export controls, which include restrictions on selling AI chips to China. “This could hurt the profits of some U.S. chipmakers,” Eitelman remarked.
Rate reviews
The European Central Bank (ECB) cut rates by 0.25% on Thursday, Eitelman said, flagging a deteriorating growth outlook. Meanwhile, Bank of Canada (BoC) officials held borrowing costs steady but noted they’re prepared to cut rates decisively if U.S. tariffs spark a recession.
In the U.S., Federal Reserve Chair Jerome Powell emphasized the central bank’s commitment to ensuring inflation expectations remain anchored during a speech on Wednesday. “Markets saw his remarks as hawkish, and sold off as a result,” Eitelman said.
Although the S&P 500 ended the holiday-shortened week down 1.5%, it proved to be a less volatile week than the prior one, he noted. “The magnitude of the daily up-and-down moves narrowed, and the S&P finished up about 6% from its April 8 low,” Eitelman explained.
In a welcome reprieve, yields on U.S. government bonds also declined this week, with the 10-year Treasury yield falling by 0.16%. “This was a welcome downshift after the big spike and chaos last week,” he concluded.