The Davy Digest - 12th May 2025

US equities edged lower for the week despite several positive developments on the trade front. The US announced a trade deal with the UK which could serve as a template for future trade deals. Over the weekend, trade negotiations started with China in Switzerland, with both countries agreeing to roll back tariffs on each other’s goods for an initial 90-day period. The Federal Reserve met on Wednesday and decided to leave interest rates unchanged, stating that the risks of higher unemployment and higher inflation had risen. In Europe, German industrial production data came in stronger than expected for March. The Bank of England met on Thursday and opted for a 25 bps interest rate cut. A larger 50 bps rate cut to 4% was considered due to tariff concerns, but the bank concluded this would be offset by a drop in energy bills and eventually lower inflation. Finally, in China, services activity expanded at the slowest pace in seven months in April, with new orders growth slowing from March, weighed by uncertainty caused by US tariffs. Chinese exports data came in much stronger than expected, exports to the US fell sharply but were offset by a jump in exports to Southeast Asian countries.

Last week's highlights

	ISM Services PMI (05/05) - Increased to 51.6 in April from 50.8 in March. FOMC Meeting (07/05) - Rates unchanged as Powell states "the risks of higher unemployement and higher inflation have risen".  Initial Jobless Claims (08/05) - Fell more than expected to 228k vs 230k forecast.
	Germany Industrial Production (08/05) - Improved 3% in March vs. 0.8% expected.
	Bank of England Meeting (08/05) - Cut interest rates from 4.5% to 4.25%, a larger cut to 4% was considered due to tariff concerns, but the bank concluded this would be offset by a drop in energy bills and eventually lower inflation.
	China Caixin Services (06/05) - Services activity expanded at the slowest pace in seven months in April, with new orders growth slowing from March, weighed by uncertainty caused by US tariffs.  China Exports Data (09/05) - Exports rose 8.1% YoY, sharply beating estimates of a 1.9% rise. Exports to the US fell sharply but were offset by a jump in exports to Southeast Asian countries.

This week, investors in the US will receive several macro data points. US inflation for April will be released on Tuesday, Fed Chair Powell has cautioned that tariffs are likely to raise prices, weaken growth and increase unemployment if maintained. US retail sales data for April will come out on Thursday, the previous report for March showed that consumer spending was stronger than expected. In Europe, the ECB will be watching closely as German inflation figures will be released on Wednesday. In the UK, investors will receive data on Q1 GDP and on UK unemployment. Finally, in Japan, Q1 GDP will be released on Thursday.

What's on the radar

	US Inflation (CPI) (13/05) US Retail Sales (15/05) US Producer Price Index (15/05) Michigan Consumer Sentiment (16/05)
	Germany Inflation (14/05) Eurozone Q1 GDP (15/05)
	UK Q1 GDP (15/05) UK Unemployment (13/05)
	Japan Q1 GDP (15/05)

Chart of the moment

Who's paying?

Source: Federal Reserve Bank of Dallas, Texas Business Outlook Surveys.

Note: Data was collected 15th - 23rd April, and 356 Texas business executives responded to the surveys. Percentages do not sum to 100% as firms were able to choose more than one response.

• A Dallas Fed survey released last week asked business executives what actions they are taking in response to tariffs.
• The survey results showed that most companies intend to pass higher costs on to customers.
• A small number of firms plan to relocate production or services to the US.
• These survey results go against the theory that tariffs will succeed in increasing domestic production in the US.