On Monday, the Caixin PMI revealed a slowdown in activity in the Chinese economy, with the index slipping to 50.7 in April from 51.9 in March. Although this marked the 28th straight month of expansion, it was the weakest reading since September 2024, reflecting growing uncertainty in the service sector. A decline in business confidence amidst global trade tensions with the U.S. contributed significantly to the softer data.
And yet we may find that the ground is shifting sooner than investors expected. In what some analysts view as a calculated move ahead of anticipated US-China trade discussions this week, Chinese officials unveiled fresh monetary easing measures on Wednesday. The People’s Bank of China (PBOC) cut the reserve requirement ratio for commercial banks by 50 basis points — a change that reduces the amount of cash banks are required to hold. The adjustment is expected to inject roughly 1 trillion yuan into the financial system, aiming to cushion the economy from the effects of recent US tariff hikes on Chinese goods. Policymakers also cut the seven days repurchase rate to 1.4% from 1.5%. The news provided market participants with some much-needed sentiment boost, with the Hang Seng gaining 1% in the morning trading session and the Shanghai Composite rising nearly 1%, too.
As expected, the Federal Reserve opted to keep interest rates steady on Tuesday, underscoring policymakers’ wait-and-see approach as global economic pressures continue to filter through and settle across economies. During a press conference, Fed Chair Jerome Powell noted that while economic activity remains solid—despite a recent GDP contraction—the current level of uncertainty has clouded the near-term outlook. Interestingly, although markets would have welcomed a rate cut, the Fed’s decision to hold rates may have signalled that the economy isn’t weak enough to warrant intervention. This interpretation helped push U.S. stocks higher by the end of the trading session and helped Treasury yields to ease.
The FTSE 100 is trading higher this morning ahead of an expected announcement from Prime Minister Sir Keir Starmer on a UK-US trade deal focused on lowering tariffs. The UK currently faces a 10% global US tariff, along with a 25% import tax on steel, aluminium, and cars.
The potential agreement follows President Trump’s recent tariff hikes and signals of progress in talks with key allies. Markets are optimistic that a deal would support UK exporters and key industrial sectors. Sentiment is also lifted by the recently signed UK-India trade agreement.
Finally, tech chip giant Nvidia closed Wednesday with a 3% gain, following reports that the Trump administration plans to repeal AI chip export restrictions introduced under former President Joe Biden. The Biden-era policy imposed a tiered cap on the number of AI chips that could be exported to key U.S. trading partners, aiming to prevent indirect chip smuggling to China. It also significantly restricted the ability of U.S. companies to expand AI data centre operations overseas.
Still to come this week we have The Bank of England’s interest rate decision, where investors are expecting to see a cut of 0.25 points – maintaining a cautious strategy to support growth amid global trade tensions. Lower rates reduce borrowing costs, boost spending and investment, and support long-term economic stability. We also have Chinese PPI data.
Nicola Tune, Portfolio Specialist
