A mixed bag of data

It was a big week for US macro data this week, with GDP, earnings and the JOLTS report all going live. 

In the event, it was something of a mixed bag: GDP growth came in below expectations, contracting by an annualised 0.3% over the first three months of the year, while job openings dropped sharply in March (but did so against a decline in layoffs). ISM PMI data showed manufacturing contracted further in April with rising input prices.

Earnings were also mixed: Magnificent Seven names, including Microsoft and Meta, posted record earnings, allaying fears of a wider meltdown, while Amazon and Apple beat expectations. Many earnings calls, however, have been marked by companies lowering their future earnings forecasts on the back of tariff-driven uncertainty.

Peak uncertainty

In a week that marked President Donald Trump’s 100 days in office, Mark Sherlock, Head of US Equities at Federated Hermes Limited, notes that, since inauguration, sentiment has been dominated by executive orders, policy announcements and tariff uncertainty, which may now have reached its peak. 

“While volatility may continue for another few weeks as individual tariff arrangements are agreed, we believe we’re past the worse and that the second half of the year may well prove more profitable for investors than the first,” he says. “We anticipate a temporary pause in consumer and corporate spending as the ‘rules of engagement’ emerge.”

Stephen Auth, Chief Investment Officer for Equities at Federated Hermes, notes that navigating the fog of the trade war was never going to be easy.:“Quite the contrary, we anticipated volatility, though not to this degree! We’re sticking with our now-moderate equity overweight, waiting for a sign that the fog is beginning to lift, or at least get less dense. Good news: we believe we may be getting closer.” 

The China perspective

In other news, James Cook, Investment Director for Emerging Markets at Federated Hermes, highlights China’s first-quarter economic growth, which outstripped expectations. This, he says, was underpinned by solid consumption, industrial output and a surge in exports driven by factories rushing shipments to customers frontloading to beat Trump tariffs. 

He adds: “Before ‘Liberation Day,' China w,"as at the end of an extended economic downcycle, showing signs of improvement due to policy shifts since September 2024 and a recovery in business confidence following the DeepSeek event. The MSCI China equity index had its best quarterly earnings in Q4 2024 in three years, delivering low teen earnings growth for the year. Chinese equities were valued at a near-record high discount to global equities, with growing earnings and improving return on investment. While boosting domestic consumption is a key priority, we believe the government will be forced to do more on the policy front to achieve its annual growth target of 5%.”

“There will, however, be more uncertainty, with consensus forecasts for a negative 1.5% to 2.0% impact on China’s GDP in 2025,” he adds. “However, faster and larger stimulus could offset some of this. China is likely to announce a fiscal stimulus package to counter any negative fallout from the tariffs and support the domestic economy. That no major stimulus has been announced in response to the US tariffs doesn’t mean it won’t come. After all, this kind of thing takes time,” Cook says. 

“In the short term, the likelihood of China implementing comprehensive, large-scale stimulus measures appears limited. Such steps are contingent upon a clearer understanding of the dynamics following bilateral meetings between China, the US, and intermediary countries. At the time of writing, these are yet to happen, though it looks as if President Trump blinked first.”