Market Sentiment Tracker: Demand Holds, Cracks Widen

Recent economic data offers a revealing snapshot of three major economies: the U.S., Europe, and China. Each is showing signs of resilience in certain areas — services strength, consumer spending, equity momentum — but under the surface, pressures are building. From widening trade gaps to softening labor markets and falling business confidence, the foundations look increasingly uneven. Here’s a quick look at the key trends to watch.

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🇺🇸 United States: Strong Demand, But Trouble Underneath

The U.S. economy is still riding a wave of consumer and services momentum, but recent data reveals widening imbalances. In this snapshot, we’ll look at why things look healthy on the surface — and why that strength might not last. The services sector remains a bright spot. April’s Services PMI came in at 51.6, continuing a ten-month expansion streak. New orders also ticked up to 52.3, showing steady demand, while businesses reported rising input prices — a sign of pricing power. But warning signs are building. The employment index fell to 49.0, back in contraction territory, suggesting companies are cautious about hiring. The trade deficit also widened dramatically, hitting $140.5 billion in March — the largest ever. Meanwhile, tariffs are quietly driving up input costs, feeding into broader inflation risk.

For now, U.S. growth is still consumer-led and services-driven. But a softening labor market, record trade imbalance, and renewed cost pressures hint at deeper structural issues that could catch up to headline resilience.

🇪🇺 Europe: Market Confidence Masks Economic Stagnation

Europe’s markets are upbeat, but the underlying economy is treading water. This week’s data shows a widening gap between asset price optimism and soft real-world indicators. Here’s what investors should be paying closer attention to. The FTSE 100’s 16-day winning streak speaks to investor confidence, driven by large-cap stocks and international exposure. But UK Services PMI slipped into contraction at 49.0 — the first in over a year. Export demand is also faltering, falling at its fastest pace since early 2021. Across the eurozone, growth is barely holding. France’s economy remains in recession, Germany’s services dipped below 50, and composite PMIs across the bloc are barely positive. Rising wage and insurance costs are also creeping back into inflation, just as demand slows.

Europe isn’t in crisis, but it’s not in recovery either. Market gains aside, the region is stuck in a low-growth pattern that looks increasingly difficult to break without stronger external demand or more aggressive policy action.

🇨🇳 China: Signs of Life, But Deeper Strains Emerge

China’s post-COVID reopening continues to bring moments of optimism, but the latest data shows those gains are uneven. Tourism and travel are rebounding, yet manufacturing and business confidence are slipping. Here's where things stand. Over the May Day holiday, domestic travel rose by 6.5% and cross-border trips surged more than 43%. These are welcome signs of life from Chinese consumers. But April’s Caixin Services PMI dropped to 50.7 — a seven-month low. Manufacturing was worse, with the official PMI falling to 49.0. Business sentiment is falling, employment is shrinking, and firms are slashing prices even as input costs rise. Trade is holding up — exports grew 8.1% — but the pace is slowing, and tariffs are already beginning to bite. Economists warn that U.S. trade actions could shave over 1% off China’s GDP.

There’s a clear split: consumers are spending again, but businesses aren’t ready to invest or hire. Without a targeted policy push, this gap may widen — putting China’s recovery on thinner ice than the headline numbers suggest.