Economy Spotlight the Most Important Events and What's Coming 21-27/04/2025

Introduction:

Global financial markets experienced a mixed mood last week, with a mix of cautious hope and a new type of confrontation between the US President and the Federal Reserve Chairman. 

This week's issue of "Economy Spotlight" also featured several events that will be discussed in this issue of "Financial Markets."

Main keywords:

• Japan indicates that tariffs pose a dangerous risk to its expected economic growth this year and next. 
• The US President praises developments in trade negotiations between his country, Japan, Mexico, the European Union, and China.
• China describes the US's 245% tariff hike as nothing more than a numbers game, and the Chinese economy is showing notable positive indicators. 
• The euro continues to gain as a former European official call for strengthening the euro's role as a global currency. 
• The International Monetary Fund holds its meetings this week amid continuing concerns about tariffs. 
• Many parties and officials warn that Trump's tariffs pose a potential resurgence of an old economic threat. 
• Japan awaits several inflation indicators this week, given the Bank of Japan's complex position on inflation.

Economy Spotlight. Major Economies:

First. The US Economy:

Despite the optimism that prevailed in the markets last week after US President Donald Trump abruptly postponed his tariffs, statements by US Federal Reserve Chairman Jerome Powell brought analysts, financial experts, and general observers back into a cycle of fear. 

Powell described the US tariffs as exacerbating inflation risks and hindering growth, reminiscent of a risk experienced by US markets more than four decades ago when they faced an economic condition known at the time as stagflation.

The calmness of the financial markets, which clashed with Powell's statements, prompted Donald Trump to criticize Powell, asserting that the optimal economic solution at the present time is to lower interest rates. He even threatened to dismiss him, a move many viewed as threatening the future independence of the Federal Reserve.

Amid this clash, the World Trade Organization also expressed concerns that Trump's tariffs could lead to a reduction in global trade volume this year.

This coincided with statements by former US Treasury Secretary Janet Yellen, who warned that US tariffs could undermine global confidence in the US economy. OPEC lowered its forecast for global oil demand growth for 2025 due to Trump's tariffs.

However, despite this unpleasant news, Trump announced positive news last weekend regarding trade agreements and negotiations with several countries, most notably Japan.

During his last meeting at the White House, Trump expressed significant confidence in concluding good trade agreements with Italy. 

He also appeared optimistic about reaching an agreement with the European Union before the tariff moratorium expires next July. 

He also indicated a similar optimism regarding an imminent agreement with the Mexican president, before concluding with a brief, positive statement expressing his optimism about an imminent agreement with China.

Amid these economic developments in the US, several economic indicators were released last week, most notably the rise in consumer inflation expectations in March from 3.1% to 3.6%. Retail sales also rose from 0.2% to 1.4% in March, which was interpreted because of Americans rushing to buy before the tariffs were implemented. 

The most notable decline was the Philadelphia Fed Manufacturing Index, which fell into negative territory, its highest level since April 2023. Observers consider this a negative sign, given that it is a key indicator of US manufacturing.

Second. European Economy:

The European economy witnessed the third meeting of the European Central Bank, which continued to cut interest rates to 2.25%, the lowest level since February 2023. 

This was supported by continued low inflation, with ECB President Christine Lagarde stating that the bank's future decisions will be made considering the data, while emphasizing growth concerns in light of US tariffs.

The single euro continued to gain, as investors moved away from the US dollar, prompting former French Economy Minister Le Maire to urge the euro to be promoted as a global benchmark.

However, Reuters confirmed, based on a European Central Bank survey, that eurozone banks tightened their restrictions on companies' access to credit as economic risks increased.

With this news, the European Union was faced with several economic indicators, most notably the stronger-than-expected rise in industrial production in the eurozone in February, reinforcing hopes that the sector has reached its lowest levels after a two-year recession, even with continued US trade.

The inflation index was also expected before the ECB meeting at the end of last week, when inflation fell to 2.2%, as expected.

Third. Japanese Economy:

Japan expects Trump's tariffs to impact its economic growth forecast for this year and next, with Japan's GDP growth forecast revised downward to 0.8% for the current year and to just 0.2% for 2026.

This downward revision coincided with concerns from Japanese Finance Minister Shunichi Kato last weekend, who described the impact of US tariffs as profound.

Despite Trump's positive statements about a promising trade agreement with Japan as a top priority in the negotiations, the Japanese economy was shocked by an acceleration in core inflation. Core inflation in Japan rose from 3% to 3.2% in March due to persistently rising food prices, which is believed to complicate the Bank of Japan's position in its upcoming meetings.

Japanese Economy Minister Akazawa stated that he had agreed to hold a second meeting with the United States this month, expressing optimism about reaching a mutually beneficial agreement.

Fourth. Chinese Economy:

The Chinese economy is the second major player receiving significant attention from analysts and observers, given the direct rivalry between the two largest economies (the US and China), which continued last week with the US raising tariffs to 245% on all Chinese imports into the US market. This prompted China to describe the tariffs as meaningless.

Indeed, China described these escalating tariffs as simply a numbers game, stressing that it expects fairer and more respectful treatment in negotiations with the US.

Amid this busy news regarding tariffs, the Chinese economy was in for a very significant economic update.

After China's trade balance reached more than $170 billion in February, the balance fell in March, better than expected, to approximately $102 billion.

The most prominent indicator for the Chinese economy last week was the first-quarter GDP reading for this year, which stabilized at 5.4%, exceeding expectations for a decline to 5.2%. Industrial production also grew to its highest level since 2021, reaching 7.7%, in line with retail sales, which also grew to 5.9%, the highest level since the end of 2023. Analysts described these positive data for the Chinese economy as preliminary positive indicators. More time is needed to confirm the success of the Chinese government's efforts to stimulate its domestic economy, whether a trade agreement is reached or not before the end of next July.

Economy Spotlight. Economic Calendar and What to Expect in the Markets Next Week:

Global markets will be awaiting the following economic data: