China’s Services Sector Slows Sharply Amid Trade Tensions, Despite Holiday Tourism Boom

Economic

Summary:

China’s services PMI fell to a seven-month low in April, signaling weakening business confidence and subdued demand as U.S.-China trade frictions spread beyond manufacturing...

Services Sector Slips to Seven-Month Low as Trade Tensions Widen Impact

In April, a key barometer of China’s economic health—the Caixin Services Purchasing Managers' Index (PMI)—declined to 50.7, its lowest reading since September 2024. This marked a significant drop from March’s 51.9 and followed a parallel decline in the government’s official non-manufacturing PMI, which slipped from 50.8 to 50.4. Although both indices remain above the critical 50 threshold separating expansion from contraction, the data highlight a deceleration in services sector growth at a time of heightened trade volatility.

The weakened services performance underlines the broader transmission of U.S.-China trade frictions into non-manufacturing sectors. As noted by Zichun Huang of Capital Economics, tariffs are eroding market sentiment and dampening the flow of new business, reflecting rising economic anxiety beyond industrial production. In fact, new orders in the service sector recorded the slowest pace of growth in 28 months.

Softening Labor Market and Waning Business Confidence

The services labor market continued to show signs of stress, with employment shrinking for the second month in a row and the fourth time in five months. This trend suggests that firms are increasingly cautious about hiring, a reflection of growing uncertainty over future demand. Business confidence, too, declined sharply. The index tracking firms' expectations for the year ahead fell to its second-lowest level since Caixin began collecting data in 2005, revealing a sentiment shift that could weigh on investment and expansion plans.

Even though service exports edged up—thanks in part to a modest rebound in international tourism—the overall sentiment remained fragile. The disruption in global trade activity and unpredictability surrounding U.S. tariff policies have prompted firms and consumers alike to adopt a more conservative stance on spending and investment.

Holiday Tourism Boom Offers Brief Respite

Contrasting the broader slowdown, the Labour Day holiday from April 30 to May 5 provided a temporary lift for the tourism segment within the services industry. According to China’s Ministry of Culture and Tourism, domestic trips reached 314 million, a 6.4% increase from last year’s holiday period. Tourism revenue totaled 180.27 billion yuan (approximately USD 24.79 billion), up 8% year-on-year.

International travel also surged, with 10.9 million cross-border trips logged during the break, representing a 28.7% jump compared to the same period last year. While encouraging, this short-lived spike may not be sufficient to offset broader concerns about long-term consumption trends and business investment.

Although the Caixin services PMI remains in expansionary territory, the sharp slowdown in April suggests China’s post-pandemic recovery momentum is increasingly fragile, particularly under the shadow of trade disputes. The divergence between short-term tourism-driven gains and structural service sector weakness underscores a complex economic landscape. With labor market deterioration, cautious hiring, and fading business confidence, the sustainability of China’s service sector growth is in question—unless trade tensions ease and domestic demand strengthens in a more lasting manner.

Source: WSJ

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Glendon

Economic

Forex

The euro zone economy continued to expand in April but at a slower pace as demand weakened and the dominant services sector nearly stagnated, suggesting the region's recovery remains fragile, a survey showed.

The HCOB Eurozone Composite PMI Output Index, compiled by S&P Global, fell to 50.4 from 50.9 in March. The reading was only just above the 50 mark separating growth from contraction.

"Euro zone economic growth slowed at the start of the second quarter, following a pick-up in the first three months of the year. The services sector, which is a major player, practically stagnated in April," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The services PMI dropped to 50.1 from 51.0 in March, its lowest reading in five months and barely above the neutral threshold.

Meanwhile, optimism among services firms weakened and the business expectations index fell to 55.1 from 57.8, a low not seen since late 2022.

Overall demand declined for an 11th consecutive month and at a slightly faster rate than in March, with both manufacturers and service providers reporting weaker sales. The new business index fell to 49.1 from 49.5.

Export orders also fell though at the slowest pace in nearly three years.

Businesses had to rely on working through backlogs to maintain activity levels, with outstanding orders decreasing for the 25th straight month.

Despite the tepid growth, employment across the bloc rose for a second month, though the increase was marginal and limited to the services sector. Manufacturing firms cut jobs for a 23rd consecutive month.

The survey showed considerable variation across the euro zone. Ireland led growth with a PMI of 54.0, though this marked a two-month low. Spain followed at 52.5 while Italy registered 52.1, an 11-month high.

Germany, Europe's largest economy, barely expanded with a reading of 50.1, while France remained in contraction at 47.8.

On the inflation front, April's data revealed further cooling in both input cost and output charge inflation, with input cost pressures easing to their weakest in five months.

"Inflation is down for sales prices and continued to trend lower. Many members of the European Central Bank have been hinting at another interest rate cut in June, and these latest figures seem to support their stance," de la Rubia said.

Source: Yahoo Finance

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Gerik

Economic

Europe Charts Path to End Dependency on Russian Gas

In a major policy move, the European Commission is preparing to release a legally binding roadmap that will end the European Union’s long-standing energy reliance on Russia. According to three EU officials, the plan includes banning new contracts and spot purchases of Russian gas by the end of 2025, and terminating all existing import contracts by the end of 2027. This action escalates the EU’s response to Russia’s 2022 invasion of Ukraine and aligns with its earlier non-binding target to cease all fossil fuel imports from Moscow by 2027.

Though the proposal is expected to be announced formally this week, it will still require the approval of the European Parliament and a reinforced majority of the 27 member states—a process that may face political resistance, especially from countries like Slovakia and Hungary that remain heavily dependent on Russian pipeline gas.

Legal and Economic Complexities Challenge Implementation

Despite a dramatic reduction in dependency—from roughly 40% of gas supply in 2021 to 19% in 2024—Russian energy continues to flow to Europe via the TurkStream pipeline and through LNG shipments. What complicates the transition is the prevalence of "take-or-pay" contracts between European companies and Gazprom, requiring buyers to pay for contracted volumes even if they refuse deliveries.

The Commission is reportedly exploring legal frameworks to nullify such agreements without incurring penalties. However, experts have cautioned that exiting these contracts without legal exposure could prove challenging, with existing arbitration mechanisms potentially siding with suppliers in the event of dispute. The exact legal tools Brussels may employ remain undisclosed, and the Commission's success will likely hinge on securing a unified stance among member states and companies.

Trade Realignment: LNG from the U.S. Gains Prominence

As Russian imports decline, Europe is leaning increasingly on alternative suppliers, with U.S. liquefied natural gas (LNG) becoming a growing fixture in its import portfolio. In 2024, the U.S. supplied 16.7% of the EU’s natural gas, behind Norway (33.6%) and just ahead of Algeria (14.1%). The shift toward U.S. LNG also satisfies calls from the Biden and Trump administrations, both of which have urged Europe to address trade imbalances and reduce dependence on Russian commodities.

Around 31% of Russian LNG purchased by the EU in 2024 came via spot contracts rather than long-term agreements, making these flows easier to curtail in the short term. The proposed ban on new spot and long-term contracts with Russia could therefore significantly curtail these inflows without requiring a complete restructuring of supply chains overnight.

Energy Security and Inflation: Balancing Pressure and Prices

The Commission remains cautious about the economic consequences of any abrupt disruption. Although punitive measures are meant to deprive Moscow of revenue, European policymakers are acutely aware of the need to avoid self-inflicted damage. With energy prices already volatile, especially during winter months, any restriction on Russian gas must be strategically timed to avoid upward pressure on inflation.

This partly explains the Commission's delay in publishing the roadmap, originally scheduled for March. The timeline was pushed back as Brussels assessed geopolitical uncertainty, potential U.S.-Russia developments, and the impact of its policies on fuel costs for European consumers.

The EU’s push to exit Russian gas contracts by 2027 represents more than an energy realignment—it signals a geopolitical repositioning away from Moscow and toward diversified, often Western-aligned suppliers like the U.S. This pivot will demand not just infrastructure adjustments and new trade deals, but also legal ingenuity to unwind entrenched commercial relationships. If successful, the move could rebalance Europe’s energy security, reinforce transatlantic cooperation, and deprive the Kremlin of a significant economic lever.

Source: Reuters

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Economic

Short-Term Gains Driven by Technical Buying and Market Reentry

On Tuesday, crude oil prices staged a modest recovery following six consecutive sessions of decline, with Brent crude rising to $61.38 and West Texas Intermediate (WTI) climbing to $58.24. This rebound comes after both benchmarks slumped to their lowest levels since February 2021, primarily triggered by OPEC+’s weekend decision to accelerate production hikes for a second consecutive month.

The uptick in prices appears to be largely technical rather than driven by fundamental shifts in market conditions. Market analysts, including Yeap Jun Rong of IG, note that the bounce is likely a short-lived response to oversold conditions rather than a signal of sustainable upward momentum.

OPEC+ Output Strategy Fuels Supply Imbalance Fears

The underlying pressure on oil prices stems from mounting expectations of a growing supply-demand gap. The OPEC+ alliance’s recent commitment to ramp up production through July, possibly adding another 400,000 barrels per day, has led many to revise down price forecasts for the coming years. Barclays, for example, has reduced its Brent crude projection by $4 to $70 per barrel for 2025 and set a more bearish outlook of $62 for 2026. Goldman Sachs similarly trimmed its outlook by $2–$3 per barrel, citing the same production trajectory.

This signals a strategic shift within OPEC+ toward maintaining or expanding market share rather than prioritizing price support. Such a change in direction could sustain downward pressure on prices in the medium term, especially if demand growth underwhelms amid escalating trade uncertainty.

Global Demand Faces Headwinds from Tariffs and Economic Slowdown

The oversupply issue is compounded by expectations of weaker global demand due to ongoing trade tensions, particularly those tied to U.S. President Donald Trump’s aggressive tariff policies. The introduction of new trade barriers has raised concerns about a broader economic slowdown, triggering a flight from oil and other cyclical commodities. Since April, oil has lost more than 20% of its value as markets recalibrate growth expectations in light of protectionist headwinds.

Nonetheless, data from the U.S. Institute for Supply Management provided a temporary reprieve. Its services PMI rose to 51.6 in April—beating expectations and indicating some resilience in domestic demand from the world’s largest oil consumer. Still, the broader sentiment remains cautious, with investors awaiting the Federal Reserve’s next move amid this uncertain macroeconomic landscape. Rates are expected to remain unchanged in the near term.

Chinese Demand Offers Limited Support

Another factor supporting Tuesday’s price gains is the return of Chinese markets after a five-day holiday. As the world’s largest oil importer, China’s reentry likely prompted opportunistic buying at discounted prices, providing a brief lift. However, analysts are skeptical about how long such demand-driven rallies can persist in the face of broader structural imbalances and market skepticism.

While the $1 rebound offers a technical breather for oil markets, the broader outlook remains clouded by oversupply, weakening demand projections, and geopolitical trade tensions. Unless there is a material shift in either production discipline from OPEC+ or a stabilization in global trade dynamics, current price levels are unlikely to hold sustainably. Market participants should brace for continued volatility and downward revisions in energy forecasts as 2025 progresses.

Source: Reuters

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Catherine Richards

Economic

Commodity

Energy

The European Union will publish plans on Tuesday to ban new Russian gas deals by the end of this year, and phase out existing contracts with Moscow by the end of 2027, three EU officials told Reuters.

The bloc had set a non-binding aim to end Russian fossil fuel imports by 2027 after Moscow's full-scale invasion of Ukraine in 2022.

The EU Commission's plan includes a commitment to propose in June a ban on new Russian gas import deals and spot contracts by the end of 2025, the officials told Reuters.

It will also make a legal proposal to ban Russian gas and liquefied natural gas imports under existing contracts by the end of 2027, said the officials, who wished to remain anonymous to discuss the confidential plans, which could still be changed before they are published.

The legal proposals would need approval from the European Parliament and a reinforced majority of EU countries.

The EU has imposed sanctions on Russian coal and seaborne oil shipments, but not on gas due to opposition from Slovakia and Hungary, which receive Russian pipeline supplies and say switching to other suppliers would hike energy prices. Sanctions require unanimous approval from all 27 EU countries.

Around 19% of Europe's gas still comes from Russia, via the TurkStream pipeline and liquefied natural gas shipments.

That's far below the roughly 40% Russia supplied before 2022. But European buyers still have "take-or-pay" contracts with Gazprom which require those that refuse gas deliveries to pay for much of the contracted volumes.

The Commission has been assessing legal options to allow European companies to break existing Russian gas contracts without facing financial penalties.

The EU officials did not specify how Brussels intends to do this. Lawyers have said it would be difficult to invoke "force majeure" to quit these deals, and that buyers could face penalties or arbitration for doing so.

Russian gas pipeline imports fell sharply since late 2021, while LNG imports rose

Uncontracted "spot" purchases made up around 31% of the Russian LNG Europe bought last year, Rystad Energy data show.

As it attempts to cut decades-old energy ties with Russia, the European Commission has signalled willingness to buy more U.S. LNG, a step President Donald Trump has demanded from Europe as a way of shrinking its trade surplus with the United States.

A pie chart showing the various natural gas suppliers to the European Union in 2024. Norway 33.6%, Russia 18.8%, United States 16.7%, Algeria 14.1%, United Kingdom 4.8%, Azerbaijan 4.2%, Qatar 4.1%, Others 3.7%.

The Commission is also concerned about energy prices, and has said any measures to restrict Russian energy imports must hurt Moscow more than the EU, and take into account the impact on fuel costs.

The U.S. is pushing Russia for a peace deal with Ukraine, which, if reached, may reopen the door for Russian energy and ease sanctions.

The European Commission had originally planned to publish its roadmap in March, but delayed it in part due to uncertainty around these developments.

Source: Reuters

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Economic

Stocks

Indian IPO Market Loses Its Shine Amid Global Uncertainty

India’s IPO landscape, which ranked among the world’s most active last year, has entered a subdued phase. At least two upcoming IPOs—those of Avanse Financial Services and Anthem Biosciences, worth a combined $759 million—are reportedly being postponed, joining a growing list of companies hesitating to go public. According to investment bankers, the weakening risk appetite among institutional and retail investors, largely due to global trade friction and geopolitical tension, is driving this slowdown.

The situation reflects broader concerns about the economic climate. U.S. President Donald Trump’s escalating tariff policies and the lingering India-Pakistan tensions have increased volatility, clouding the outlook for capital markets in emerging economies. In response, many firms are pressing pause on capital-raising efforts, waiting for greater market stability before launching IPOs.

Data Points to Broad-Based Decline in Public Listings

India has seen a 58% drop in IPO activity on its main exchanges so far in 2025, according to data from PRIME Database. Total IPO fundraising across all platforms has declined 18%, per LSEG figures. Currently, 58 companies with regulatory approval are yet to initiate their public offerings. With many of these clearances set to expire soon, affected firms face the choice of restarting the IPO process or seeking regulatory extensions—both of which carry financial and procedural burdens.

This disruption marks a sharp departure from 2024, when India trailed only the U.S. in IPO volume. Now, uncertainty over macroeconomic policy and tariff spillovers has disrupted the momentum that once positioned India as a global IPO hotspot.

Investor Sentiment Turns Cautious Despite Full Subscription for Ather Energy

The muted performance of Ather Energy's debut on May 6 served as a real-time indicator of cautious investor mood. Despite achieving full subscription for its $352 million IPO, the electric vehicle company had to slash its valuation target by 44% and reduce the offering size. Pre-market trading saw shares hovering near the issue price of ₹321 ($3.81), signaling a lackluster start.

Retail investors have become particularly wary. After suffering losses during recent market swings, their appetite for new listings has diminished, resulting in tepid responses to offerings that just months ago might have been met with exuberance.

Bankers Advise Patience, Realignment on Valuations

In the face of increased volatility and valuation compression, investment bankers are urging potential IPO candidates to adjust expectations. Bhavesh Shah, managing director at Equirus, outlined a critical trade-off: “If the issue is important, you may need to reconsider valuations. If valuation is important, then waiting is your best option.”

Other firms are already deferring timelines. Online automobile platform Droom, for example, has opted not to file draft IPO papers by June as originally planned, citing prolonged uncertainty. These decisions illustrate how pervasive caution has become, even among high-profile, tech-oriented ventures.

The retreat in India’s IPO momentum underscores how global macroeconomic policy—particularly erratic tariff decisions—can ripple into emerging markets and reshape capital-raising strategies. With more companies delaying or downsizing offerings, the IPO pipeline remains crowded but frozen. Unless global and regional stability returns, and investor sentiment recovers, India’s public markets may remain in a state of cautious paralysis well into the second half of 2025.

Source: Reuters

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Forex

Economic

Dollar Stabilizes After Wave of Selling, But Trade Concerns Persist

Markets opened Tuesday with a tempered tone as the U.S. dollar found temporary support following a sharp, two-day selloff driven by Asian currency surges—particularly the Taiwan dollar. The rally in regional currencies had previously sparked widespread dollar repositioning, reflecting heightened sensitivity to Washington's unpredictable tariff strategy. However, with no confirmed breakthroughs in trade negotiations, the positive sentiment that followed Beijing’s openness to U.S. talks last week has begun to wane.

Investors remain cautious, interpreting the dollar’s pause not as a reversal, but as a breather before more clarity emerges—especially from the Federal Reserve’s policy decision due Wednesday. European markets are also expected to open flat, with futures signaling little momentum as traders await macroeconomic signals and hard data.

Asian Currencies Drive Global FX Narrative

The Taiwan dollar’s nearly 3% rally against the greenback on Monday remains a headline driver, underscoring the powerful repricing in regional FX markets. Other currencies also joined the trend: the Malaysian ringgit surged 1.5% on Monday, reaching its strongest point since October, though it has since pulled back slightly. The Hong Kong Monetary Authority once again intervened to maintain the peg, stepping into markets for the fourth time this month as the local currency tested the upper limit of its trading band.

Market speculation is growing that some Asian economies are deliberately allowing their currencies to appreciate as leverage in ongoing or upcoming trade negotiations with the U.S., potentially using FX strength to signal policy flexibility in return for tariff concessions.

While this strategy may offer diplomatic benefits, it also invites risks—particularly for export-driven economies. Rapid currency appreciation can undermine export competitiveness even as it helps dampen imported inflation and reduce dollar-denominated debt burdens.

European Focus: PMI Data and Trade-Sensitive Sectors

In Europe, attention is shifting to the release of April PMI figures for France, Germany, the UK, and the broader eurozone. These indicators are expected to shed light on how the region’s industrial activity is coping with global trade disruptions.

Sectors exposed to U.S. trade policy—such as automotive—are under scrutiny. Ford Motor's decision to suspend its annual guidance due to U.S. policy uncertainty reverberated across the industry and put pressure on European carmakers. Meanwhile, earnings reports from Ferrari and Telenor are due, adding to a mixed outlook for equities.

Fed Outlook: Message More Important Than Action

Although the Federal Reserve is widely expected to hold interest rates steady at its policy meeting this week, investors will be parsing the language of its statement closely. The central bank is navigating a complex environment where inflation pressures—exacerbated by tariffs—are building, but growth momentum is fragile.

Economists expect a "hawkish hold," signaling concern about inflation without a readiness to hike further. Traders are still pricing in 75 basis points of rate cuts for 2025, with the first move potentially in July, based on LSEG data.

The current market backdrop is defined by hesitation. While the U.S. dollar's recent losses appear to have stalled, investor positioning remains vulnerable to headline volatility, especially related to trade policy. Asian currency strength, driven by both technical positioning and diplomatic signaling, has shifted the center of gravity in global FX markets. As the Federal Reserve, European data, and tariff headlines converge, this week could redefine near-term market sentime