Overview
This year, April Fool’s Day occurred on the second day of the month, with so-called ‘Liberation Day’ placing substantial tariffs on nations across the globe. An island solely inhabited by penguins even made the tariff list, and markets, unsurprisingly, sold off as investors had cold feet rather than Happy Feet. Trump was particularly concerned with the ‘yippie’ bond market and subsequently implemented a 90-day pause on the tariffs, enabling a large number of asset classes and equity markets to finish the month broadly unchanged from where they started. The S&P 500 was consequently able to narrowly avoid entering a bear market, down 19% from its most recent high, before the tariff pause.
As we outlined in our timely piece on ‘Liberation Day’, the best days in the market often follow shortly after the worst, and this pattern was echoed once again. This was exemplified by the Chicago Board Options Exchange Volatility Index (VIX), which experienced both its highest peak since the pandemic’s onset and its largest single-day percentage decline on record.
The US dollar and gold were the key exemptions to the reversal trade that occurred when tariffs were paused. The precious metal’s price surged, fuelled by mounting geopolitical uncertainty and a discernible move away from the dollar. This shift was exacerbated by President Trump’s threats to the Federal Reserve’s independence.
Despite the reduction in volatility towards the end of the month, the VIX remains above its long term average, and we would expect it this to remain the case in the coming months as economic data weakens. US consumer confidence hit a 13-year low, and a contraction in Gross Domestic Product (GDP) during Q1 suggested that the weakening soft (subjective) data is beginning to feed through into hard (objective) data points. While there are limited signs of widespread layoffs thus far, the longer tariffs remain a cloud over the global economy, the more recession fears will grow. On a positive note, the US Personal Consumption Expenditures (PCE) reading showed the smallest rise in core price inflation since April 2020, bringing the annual core inflation rate down from 3% to 2.6%. This will give the Federal Reserve (Fed) Chair Powell more license to reduce interest rates as the economy slows.
Elsewhere, the International Monetary Fund (IMF) materially downgraded growth forecasts for economies across the globe, and earnings revisions are moving increasingly negative. Lower inflation has enabled more proactive monetary policy outside the US, with the European Central Bank (ECB) and the Reserve Bank of India (RBI) deciding to implement a further 0.25% interest rate cut during the month. After weaker-than-expected UK inflation, the markets are now pricing in certainty for an interest rate cut from the Bank of England (BoE) in May.
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Our weightings are based on sterling as a base currency.
United Kingdom (UK)
Following an early-month sell off which saw the FTSE 100 drop over 12% at one point, markets staged a strong recovery. The end of month saw 12 consecutive sessions of gains for the FTSE 100, which was the longest winning streak for the main market since 2017. As investors looked more domestically to shelter from tariff threats, the FTSE 250 outperformed over the month, gaining 2.71%, whilst the more internationally exposed FTSE 100 shed 0.66%.
The latest GDP figures painted an encouraging picture of the UK economy’s early performance this year, showing a faster-than-anticipated expansion of 0.5% in February, primarily fuelled by the robust services sector. However, the flash Purchasing Manufacturing (PMI) data for April introduced a note of concern, suggesting that the impact of tariff uncertainty is beginning to be felt. The index moved into contractionary territory, falling to its lowest level since November 2022. Worryingly, export orders contracted at their quickest pace since the pandemic’s onset, while the already struggling manufacturing sector experienced a further downturn. In broader economic news, the International Monetary Fund (IMF) revised down its UK growth forecast for 2025 to 1.1%, citing growth shocks stemming from potential US trade policies.
The latest inflation reading offered a welcome surprise, undershooting forecasts with an annual rate of 2.6%, down from 2.8% in February. Services inflation also eased more than anticipated, falling from 5% to 4.7%. It is important to note, however, that analysts anticipate a potential uptick in inflation in the coming months due to the increases in utilities, energy, mobile bills, and council tax in April. Given the prevailing economic uncertainties, markets continue to price in further monetary easing by the Bank of England, with expectations of another rate cut in May and two more throughout the remainder of 2025.
Retail sales gained momentum in March, rising by 0.4% against a consensus drop of 0.4%. Good weather boosted sales of outdoor and clothing retailers. Non-food stores actually saw sales volumes at their highest levels since March 2022. House price growth eased somewhat, partly attributed to the changes in stamp duty at the beginning of the month which likely pulled forward transactions into March.
United States (US)
April was characterised by significant volatility with Trump’s ‘Liberation Day’ tariff board not amounting to a ‘beautiful thing’, causing sharp falls in US markets in the early part of the month. A subsequent pause of certain tariffs and encouraging rhetoric on potential trade deals alleviated concerns as the month wore on. There was a further sell-off later in April as Trump labelled Fed Chair Powell a ‘major loser’ for not lowering rates fast enough, but he indicated later that he had no plans to fire him and markets moved higher. The Nasdaq ended the month up 1.55% as technology performance solidified following upbeat earnings from Alphabet, Meta and Microsoft. The DOW was more severely affected by the tariff announcements, ending down over 3%, whilst the S&P 500 recorded a modest 0.68% decline.
The US economy shrunk by 0.3% in the first quarter, equating to the worst quarterly performance since 2022 and behind consensus. The figure has been heavily distorted by a 41% increase in imports as companies tried to get ahead of the tariffs and this will unlikely be repeated in second quarter figures. Private investment in equipment and inventories remained fairly solid. Flash PMI’s showed business activity growth slowing to the lowest level in 16 months, with service activity slowing but manufacturing seeing a surprise rise in activity.
Americans’ confidence in the economy continues to be rattled, and the latest consumer confidence reading hit its lowest level since the pandemic. The Expectations Index, which reflects consumers’ short-term outlook for income, business and labour market conditions, plummeted in April to the lowest level since 2011 and down to a level which would usually signal a looming recession.
However, there was some better news to be found. On the inflation front, March Consumer Price Index (CPI) showed the 12-month inflation rate at 2.4%, down from 2.8% in February and below consensus. Core inflation was at its lowest level since March 2021. Retail sales also posted better than forecast growth in March, rising 1.4%, boosted by autos and car part sales.
Europe
The European Central Bank cut its key interest rates by 0.25%, bringing the deposit rate down to 2.25%. The widely anticipated move reflects the ECB’s confidence that inflation is easing toward its 2% target and concerns over the negative hit to growth from tariffs. With core and services inflation cooling, wage growth moderating, and firms absorbing cost pressures, the ECB reaffirmed a data-dependent approach, stopping short of signalling further cuts. Economic data showed some resilience, with Germany’s GDP growing 0.2% in Q1, rebounding from a contraction in the previous quarter. Still, on an annual basis, the German economy contracted 0.2%, marking its seventh consecutive quarter of recession.
The CAC and DAX both finished the month marginally in the green, despite volatility borne out of renewed trade tensions and mixed economic and corporate earnings reports. One key contributor to European market performance was SAP Software Solutions, which soared 11% after the German firm reported profit and free cash flow that topped estimates. SAP is now the most valuable publicly traded firm in Europe, surpassing Novo Nordisk and LVMH, which had very poor share price performance.
The German ZEW indicator of economic sentiment posted its largest decline since Russia’s invasion of Ukraine, driven by heightened uncertainty amidst the unpredictable shifts in US trade policy and the imposition of new reciprocal tariffs. Business activity also showed signs of stress, slipping into contractionary territory as both service and manufacturing sectors faced renewed pressure from trade friction and falling business confidence. However, it wasn’t all doom and gloom. A positive development was the appointment of finance minister Lars Klingbeil, an advocate for increased public investment, particularly in defence and infrastructure. His stance signals a potential departure from Germany’s long-standing ‘debt brake’, a constitutional rule limiting federal borrowing. This proposed shift has been widely welcomed, as reflected in a noticeable improvement in the Consumer Climate Indicator.
Asia and Emerging Markets (EM)
A large number of the key Asian and Emerging Market indices finished the month up slightly, with India gaining 3.5% and Japan up 1.2%. China was the main exception, shedding 1.7%. India and Japan’s markets were buoyed by increasing optimism over their ability to secure a fast and favourable tariff agreement with the US. Both countries reported improvements in their Purchasing Managers’ Indices suggesting a degree of underlying economic momentum. Apple’s announcement to move its production to India provided hope that the company will continue to capitalise on the reduced foreign direct investment in China. Furthermore, the interest rate cut from the Reserve Bank of India (RBI) will generate further support for the economy.
Brazil and Australia also provided bright spots, with both indices up close to 4%. Brazil’s performance was aided by a weaker dollar and a sharp spike in commodity exports. Australia is even more commodity-oriented and the price rise in commodities, especially gold, delivered a boost for mining stocks.
China presented a mixed picture. They reported an impressive 5.4% GDP growth figure, which was largely fuelled by a temporary front-loading of orders ahead of tariffs, leading to a 12.4% surge in exports. Meanwhile, factory activity in China contracted at its fastest pace in 16 months, indicating underlying weaknesses and the growing impact of global economic uncertainty on domestic production. If the average tariff on Chinese goods remains above 100%, China’s exports to the US are forecast to halve, leading to a substantial 1.5% reduction to its economy by the end of next year.
Fixed Income
Similar to equity markets, bond markets largely finished the month where they started. Bond market volatility was unsurprisingly very elevated in April, and although it dropped back after the tariff pause, the Merrill Lynch Option Volatility (MOVE) index closed the month above historical averages. Fixed income markets were characterised by a tug-of-war between concerns over trade policies and their potential to slow economic growth and increase inflation. Government bonds sold off initially amidst the tariff turbulence. The associated price hikes led investors to fear a tighter monetary policy stance and started to demand a higher term premium for holding treasuries in the uncertain environment. This led the US 30-year yields to hit their highest since the pandemic and UK 30-year yields to hit their highest since 1998. The subsequent tariff pause and cooler inflation data allayed these fears somewhat and markets consequently rallied to leave yields close to where they started the month. Short duration bonds naturally outperformed in the sell-off, but their underperformance in the rebound led to long duration bonds finishing slightly ahead for the month as a whole.
Corporate bonds followed a similar trend, with spreads blowing out on recession fears. The higher quality investment-grade bonds naturally outperformed higher-yield bonds, which had their largest slump since pandemic. However, this sell-off also reversed after the tariff pause. Local currency emerging market bonds were the stand-out performers given the weakness in the dollar.
Alternatives
Volatility this month aided a new record high for gold, breaching the $3500 mark. This was also the first inflation-adjusted record for decades, which subsequently saw some profit-taking and without further buying momentum, the price appears to have stabilised around $3300 per ounce.
Markets have been somewhat reassured by signs that Trump has eased his stance on tariffs, with speculation over a possible trade deal between the US and China.
As central banks are looking to move away from the dollar into other assets, this process of de-dollarisation continues to add to gold’s use in national reserves. The Royal Mint has also announced record levels of gold demand, and consequently, the combination of investor and central bank demand continues to support prices. Gold is up a massive 42% over the past year and more than 26% year-to-date.
Meanwhile, oil has suffered its biggest monthly decline since November 2021, with Brent Crude Oil down close to 14%. Following the ‘Liberation Day’ slump, the benchmark slid to four-year lows as the Chinese retaliated with their own levies, thus bringing about a trade war between the world’s largest oil-consuming nations. Some nerves were quelled momentarily by Trump’s new policy, which softened the impact of auto tariffs, but this was short-lived due to concern over increasing supply from The Organization of the Petroleum Exporting Countries (OPEC+) and a considerable uptick in US crude oil inventories.
Property
Nationwide reported a 0.6% month-on-month contraction in house prices, which was the steepest since August 2023 and brought the average home value to £270,752. This downturn followed the reintroduction of stamp duty thresholds on 1 April, which lowered exemptions for first-time buyers from £425,000 to £300,000. Consequently, annual house price growth moderated to 3.4% from 3.9% in March. Halifax’s February data indicated a modest 0.1% monthly decline and a 2.9% annual increase in house prices. The Royal Institution of Chartered Surveyors (RICS) further supported the trend, reporting a house price balance of 28% in December 2024, which suggested a persistent yet decelerating upward pressure on prices.
The S&P Global UK Construction PMI indicated a robust expansion in the sector, with the headline index rising to the highest level since February 2023. This growth was driven by increased commercial and civil engineering activities, while house building remained subdued courtesy of the ongoing challenges in the residential market. Despite the overall growth, house builders have cautioned that it will take at least a year to begin increasing housing supply, with output expected to decline this year, complicating the government’s ambition to ‘get Britain building’.
Looking ahead, the housing market may face continued pressure from stamp duty changes and the lull following the end of stamp duty holidays. However, Nationwide’s chief economist remains optimistic, stating that there will be a gradual recovery as summer progresses, supported by favourable conditions for prospective homebuyers, despite ongoing global economic uncertainties.
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Important Information
All Index data figures are sourced by Morningstar and correct as at 30 April 2025, unless otherwise stated.
The value of investments or any income arising from them may fluctuate and are not guaranteed. Past performance is not necessarily a guide to future performance.