Global Markets, Oil, and Crypto Slide With Demand Fears
U.S. economy fell in Q1, trade deficit surges, Fed rate cuts likely; global markets react, oil and crypto decline
U.S. Economy Fell Amid Trade and Policy Volatility
The U.S. economy contracted in Q1 2025 for the first time since 2022, highlighting a broader loss of momentum even before President Trump’s new tariffs took effect in April. The Atlanta Fed’s GDPNow tracker points to a decline between -0.8% and -1.75%, well below the previously forecasted 0.3% growth. A record-high March trade deficit, driven by import surges ahead of tariffs, significantly dragged on GDP. Labor data also disappointed: job openings hit a six-month low, and private-sector hiring undershot expectations by more than 50%. Consumer confidence for April fell to its lowest level in five years.
Market reaction was swift. The S&P 500 fell 2%, the Nasdaq 2.5%, and the Dow fell 702 points (-1.7%). Treasury yields eased, with the 10-year falling to 4.17%. Investors raised bets on monetary easing, now pricing in as many as four Federal Reserve rate cuts in 2025. However, expectations remain low for any change at the Fed’s next policy meeting. Inflation data showed some relief, with March’s PCE index stalling for the first time in nearly a year.
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Corporate Earnings Reflect Macro Weakness
Earnings reports reflected growing uncertainty. UPS announced 20,000 job cuts, while General Motors pulled its 2025 guidance due to policy ambiguity. Super Micro Computer cut its Q3 forecast on delayed AI-related demand, leading to an 18.1% stock decline. Starbucks missed sales and profit expectations, while Snap and Booking Holdings flagged macroeconomic headwinds. In contrast, select firms such as Visa and Humana exceeded expectations, though management commentary remained cautious about the economic outlook.
Europe Shows Resilience Amid Global Weakness
The euro zone posted a 0.4% quarter-on-quarter GDP increase in Q1, outperforming expectations. European stocks were modestly lower, with the Stoxx Europe 600 down 0.4%. Earnings from major banks including UBS, Barclays, and Societe Generale beat forecasts, though only SocGen saw positive share performance. The British pound fell 0.7% to $1.3311. U.K. markets continued a positive run, with the FTSE 100 on its longest winning streak since 2016–17.
Asia Sees Growing Signs of Strain
China’s factory activity in April declined at its fastest rate in 16 months, signaling continued contraction and broader demand weakness. Although Beijing introduced exemptions on certain U.S. imports to soften the impact of retaliatory tariffs, growth concerns persist. The Japanese yen declined 0.4% to 142.85 per dollar, reflecting ongoing divergence between U.S. and Asian monetary policy paths.
Oil and Commodities Fell on Demand Concerns
WTI crude prices fell 1.6% to $59.46 per barrel, slipping below the $60 threshold for the first time in weeks. Spot gold also fell 0.4% to $3,304.20 per ounce. Weaker global factory output and softening consumer demand continue to weigh on commodity markets, with oil particularly vulnerable to signals from China and the U.S.
Cryptocurrency and Bonds Fell, Reflecting Defensive Positioning
Bitcoin fell 1.6% to $93,330.29, and Ether declined 3.2% to $1,752.12, in line with broader risk aversion. U.S. 10-year Treasury yields stabilized around 4.17%, while Germany’s and the U.K.’s 10-year yields fell to 2.45% and 4.45%, respectively. The return of volatility has led to increased demand for safe-haven assets, as reflected in rising bond prices and a spike in the Cboe Volatility Index.
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