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Dear Reader,

If you  had decided on January 1, 2025, to spend the first four months of the year as a hermit in some remote mountain cave, completely cut off from the outside world, and if you had checked the markets once you came back to civilisation, you might have concluded that precious little had happened during the year. You would have missed the Trump inauguration, the beginning of tariffs, Trump’s threats of annexing Canada, Greenland and the Panama canal, the imposition and the rolling back of the so-called reciprocal tariffs, dire predictions of the unravelling of the old world order, the rupture between Europe and the US, the warnings of a slowdown in global growth, intensification of the US-China trade war, and a deadly terrorist attack in Pahalgam that stoked tensions at the border. And yet, when you came back to civilisation, you would look at the markets and conclude that all is well. The Nifty is up 2.5 percent year to date, the rupee has appreciated against the dollar, and Indian 10-year government bond yields are down.

Nor is it only the Indian markets that are up in the year to April 30. Despite the weakness in the European economies, MSCI France is up 13 percent in dollar terms, MSCI Germany a huge 24 percent, and MSCI UK 11 percent. MSCI Japan, Hong Kong, Korea, Brazil, China, Canada are all up. Much of the gains happened in April, the month when Trump shot his tariff bazooka. It’s a cliché to quote TS Eliot’s opening line from his celebrated poem ‘The Waste Land’ that ‘April is the cruellest month’, but this April has been far from cruel for the markets. Perhaps, as the poem goes on to say, the month has stirred ‘dull roots with spring rain’.

The equity market that has suffered the most from Trump’s tariff tantrum so far has been the US, and MSCI USA, as on April 30, was down over 5 percent year to date. Is that a reflection of the US GDP estimate for Q1 2025 which saw an annualised shrinkage of 0.3 percent?  This FT story, written by Jason Furman, Harvard professor and chair of President Obama’s council of economic advisers, says we should “focus instead on what could be called “core” GDP — the figures that reflect consumer spending and private investment”. And that core GDP growth, Furman said when the numbers came out, was a bit weaker than a 3 percent annual growth rate, not bad at all.

Most observers say the pain the US economy will be felt in the second quarter, as piled up inventories are run down, and fresh supplies are only available at a much higher price. The S&P Global US Manufacturing PMI for April was flat, but anecdotal evidence suggests that the impact of the tariff hikes will soon start being felt.

In fact, the April manufacturing PMIs have, for the most part, sagged under the pressure of tariffs. In Asia, the manufacturing PMIs of Taiwan, South Korea, Indonesia, Malaysia, and Thailand all contracted from the previous month. China’s Caixin manufacturing PMI index was barely in positive territory. The manufacturing PMI in Europe improved, but was still below the level separating expansion from contraction.

Analysts have also pointed to another strange trend—earlier both stocks and bonds sold off together, and now they are going up together. A possible reason could be, as this story says, “both stocks and bonds are hurt, not by tariffs in particular, but by unpredictable and inept US policymaking in general — something the “liberation day” announcements personified. When the US government shoots itself in the foot, you sell stocks because growth is at risk, and you sell Treasuries because you have second thoughts about who you are lending to. You do the opposite when the administration walks bad policy back, as it has been doing lately”.

Indeed, talk of trade deals may be the reason for the renewed optimism. Trump administration officials have spared no effort in signalling that trade deals are in the offing. China too has indicated that it is evaluating possible trade talks with the US.

US Vice-President Vance has said one of the first trade deals could be with India. In fact, India is a big outlier on the manufacturing PMIs for April, which came in at 58.2, far above that of other countries. On the PMI data, Pranjul Bhandari, Chief India Economist at HSBC, said: "The notable increase in new export orders in April may indicate a potential shift in production to India, as businesses adapt to the evolving trade landscape and US tariff announcements. Manufacturing output growth strengthened to a 10-month high on robust orders.” It’s quite a contrast to the dismal picture painted by the March data on industrial production.

Remarkably, a government survey found that while overall capex intentions for FY26 are lower than in the previous year, the manufacturing sector expects to see a rise. That ties in with the China +1 story.

On the other hand, sectors dependent on external demand are wary, as seen in the cautious outlook of KPIT Technologies and this mid-sized IT company. A supply glut in China and consequent dumping could affect even domestic-focused companies, and we examined the prospects of Jindal Steel & Power. In the auto sector, while the new fiscal year has started off in low gear for most auto companies, there are exceptions. The Maruti management, though, has identified the challenge concerning overall demand, noting that 88 percent of the country is not participating in growth in car sales, likely due to affordability issues at the entry-level segment.

As for the threat of an escalation of hostilities with Pakistan, my colleague Shishir Asthana wrote that history suggests markets are more resilient in times of war than initially feared, and we looked at which defence stocks could benefit.

It's remarkable that the markets have been so adaptable in spite of what has been a breath-taking display of policy dissonance by the Trump regime. It suggests that, at bottom, the markets believe that Trump will not do anything that will hurt them.

That said, now that the mask has fallen exposing the predatory nature of US policy, countries are likely to take steps to protect themselves. Trust in the US is unlikely to return in a hurry. As Martin Wolf wrote in this hard-hitting piece, “A purely transactional US will not receive the wholehearted support of its allies.” That could be behind dollar weakness. As this FT story says, “Mostly, the market ended April in a spring-like mood. But the dollar didn’t quite. It has lingered near three-year lows against other major currencies. It’s as if investors are a bit less confident in their future claims on the US government than they were. For all the surface calm, it is worth watching these undercurrents.”

For the weekend, though, we could sing along with Queen, ‘Don’t Stop Me Now’:

‘Tonight, I'm gonna have myself a real good time

I feel alive

And the world, I'll turn it inside out, yeah

I'm floatin' around in ecstasy

So don't stop me now

Don't stop me

'Cause I'm havin' a good time

Havin' a good time.’Cheers,

Manas ChakravartyIn case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

Is this value retailer poised to benefit from the shift to organised segment? Which life insurance company’s stock should investors bet on? A long-term play on asset financing, Ather IPO: is it worth the ride? Can IndusInd bury its troubled past and move on, Eternal—is the growth strategy losing its flavour? Federal Bank, Bajaj Finance, Trent, UltraTech, CSB Bank, RIL, M&M—SML Isuzu deal, Laurus Labs, Shriram Finance, Dalmia Bharat, 360 ONE Wealth, PCBL, Varun Beverages, Bajaj Housing

Markets

Why gold prices can touch the $4000 mark

What makes the case for silver to shine?

Emotional Capital in trading: the forgotten aspect

Everyone’s watching the index—but that’s not where the action is

Financial Times

The spectre of dollar doomsday still looms

Geopolitics

Where India stands in global military spending

How India can keep China away from supporting Pakistan in a conflict

With Bangladesh, India needs to go the extra mile

Can global firms navigate the age of economic weaponisation?

Utah Pays Vendors in Gold: Toward a gold standard?

Companies & sectors

IDFC First Bank

Bajaj Finance

Rallis India

IndusInd investors on edge

UltraTech: Are gains from acquisitions beginning to play out?

Can India become a wind energy hub in Asia-Pacific ex-China?

Economics & Policy

What is ailing ONDC?

RBI’s liquidity push

Clearing non-tariff hurdles key to clinching trade deals

Rule incentive for GST to perform better

Start-up frauds once again expose weak regulation of accounting professionals

Pro Economic Tracker

Tech and Start-ups

Startup Street: The Chinese dragon in Indian startups

How India should navigate the US-China technology war for supremacy

LTIMindtree CEO sees slowdown in discretionary spend-driven transformation programmes

Real value for customers is in interface, not in data or AI models: Adobe CEO Shantanu Narayen

Personal Finance

Specialised Investment Fund- the new kid on the block

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