Market Sentiment Tracker: Stimulus, Sentiment, or Stalling

The latest round of global economic data offers a revealing snapshot of divergence beneath the surface. While some sectors and regions are finding their footing, others are struggling to regain traction — or losing it altogether. From softening U.S. inflation to Europe's patchy recovery and China’s faltering credit impulse, the picture is increasingly nuanced. Here’s a closer look at what the numbers are really telling us about momentum, resilience, and emerging cracks across the world’s three major economies.

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🇺🇸 United States: Cracks Beneath the Surface of Resilience

The U.S. economy continues to send mixed signals, but the tone of the data suggests that resilience is becoming more selective — and more strained. On the surface, there are still glimmers of strength. Small business sentiment edged higher in April, with the NFIB index rising to 95.8 — a decent bounce considering broader macro uncertainties. Mortgage activity also picked up modestly, while headline retail sales squeaked out a 0.1% monthly gain. And regional manufacturing gauges like the Philadelphia Fed index showed clear improvement, with business conditions rebounding sharply and new orders jumping from deep contraction into expansion territory.

But the underlying tone of the data tells a more fragile story. Core inflation measures are cooling more abruptly than expected — Core PPI dropped -0.4% on the month, the sharpest monthly decline in years, while headline PPI plunged -0.5%. These aren't just disinflationary surprises — they're signs of demand-side weakness bleeding into margins. That’s confirmed by soft retail control figures (-0.2%) and a continued decline in real earnings (-0.1% MoM), suggesting the consumer is starting to lean back, not forward. Even though headline CPI was stable, the granular trend is one of deceleration.

Manufacturing remains a weak spot. Output fell -0.4% in April, and the NY Empire State index slid deeper into contraction. Capacity utilization was stagnant, and jobless claims, while not alarming, have ceased improving. This paints a picture of an economy that's holding on — but increasingly reliant on isolated tailwinds rather than broad momentum. The pressure on margins and investment plans could soon be more visible, especially if these disinflationary pressures linger.

🇪🇺 Europe: Manufacturing’s Recovery Isn’t Lifting All Boats

There’s renewed life in Europe’s industrial core, but it’s not translating into broader economic momentum. Germany’s manufacturing data came in strong — production rose 2.6% in March, and year-on-year growth hit 3.6%, reflecting some catch-up after months of stagnation. The ZEW Economic Sentiment index also jumped sharply, with Germany’s reading climbing to 25.2 from -14.0, and the eurozone aggregate turning positive. These are significant sentiment shifts, likely driven by easing energy risks and a stabilizing global backdrop.

However, the upside stops there. The German ZEW Current Conditions index remains deeply negative (-82.0), showing that expectations are improving far faster than actual business activity. And outside of Germany, the consumer remains hesitant. Sentiment in France and Italy is still sliding, with the Thomson Reuters IPSOS indices stuck near pessimistic levels. Inflation, meanwhile, is no longer the urgent issue it once was — French CPI held flat at 0.8% YoY, and German WPI actually declined month-on-month. This indicates that price pressure has subsided, but at the cost of demand momentum.

The services sector isn't participating in the rebound. While employment did tick up modestly (0.3% QoQ), eurozone GDP missed expectations at 0.3% and showed little sign of acceleration. The ECB may find itself stuck: inflation has cooled, but consumption hasn't rebounded, and growth is heavily skewed toward northern manufacturing. Without a more coordinated fiscal push, especially from southern and consumer-heavy economies, Europe risks settling into a two-speed, semi-stagnant recovery.

🇨🇳 China: Credit Engine Misfires Despite Monetary Support

April’s financial data from China underscores the growing disconnect between monetary intent and real credit appetite. Authorities clearly loosened liquidity — M2 growth jumped to 8.0% YoY, comfortably ahead of expectations. Yet the response from borrowers was muted. New loans collapsed to just ¥280 billion, well below the ¥710 billion forecast and a dramatic fall from March’s ¥3.6 trillion. Total social financing tells a similar story: while it was better than feared at ¥1.16 trillion, the drop from the previous month’s ¥5.89 trillion signals a sharp deceleration in financial intermediation.

The implications are increasingly clear. Households and firms appear reluctant to take on new debt, even as conditions become more favorable. This speaks to a confidence gap — either in income prospects, policy consistency, or future demand. Loan growth on a year-on-year basis also slowed to 7.2%, reinforcing the view that credit transmission is weakening despite central bank support.

This is particularly concerning given the backdrop. While some green shoots have appeared in industrial output and select tech sectors, these are not broad-based. The credit data now confirms what PMI surveys had hinted: any recovery underway is likely to be shallow, uneven, and highly dependent on government-led infrastructure and industrial policy. Without stronger consumer or private-sector investment engagement, China risks entering a phase of capital drag — where policy stimulus boosts liquidity but not velocity.