The US economy unexpectedly contracted in the first quarter of 2025, sparking recession fears and rattling markets, as President Donald Trump’s aggressive trade policies and political blame game stoked investor uncertainty.

A defensive Trump quickly blamed former President Joe Biden while insisting the economic “boom” he promised will still materialize—eventually.

GDP shrinks as businesses rush to beat Trump tariffs

Gross domestic product (GDP) fell at a 0.3% annualized rate between January and March, according to Commerce Department data released Wednesday.

It marks the first quarter of negative growth since Q1 2022 and a sharp reversal from the 2.4% expansion recorded in Q4 2024.

Economists polled by Dow Jones had expected 0.4% growth.

The main culprit: a 41% surge in imports as companies scrambled to stockpile goods before Trump’s “reciprocal trade” tariffs took effect in early April.

Goods imports alone jumped 50.9%, subtracting over five percentage points from GDP.

Meanwhile, exports rose just 1.8%, worsening the trade deficit.

Consumer spending slows; government cuts weigh on growth

Personal consumption expenditures—an essential component of the US economy—rose only 1.8%, down sharply from 4% in the previous quarter.

Government spending also contracted, with much of the decline attributed to mass cancellations of federal contracts by Elon Musk’s Department of Government Efficiency, a newly created office under Trump.

Private domestic investment was a bright spot, surging 21.9%—a sign that some firms are front-loading capital expenditures to navigate policy changes or take advantage of tax incentives.

Markets sink, jobs report disappoints

The weak data sent financial markets sharply lower. Dow Jones Industrial Average futures fell 315 points, or 0.7%, while the S&P 500 dropped 1.2% and Nasdaq 100 slid 1.7%.

Stocks had already been on edge following Trump’s April 2 tariff announcement, which triggered an initial 11% drop in the S&P 500 before a modest recovery. The index is still down 1% for April.

A separate report from ADP added to the gloom, showing private payrolls rose by just 62,000 in April—well below the 120,000 expected and marking the weakest job growth since July 2024.

Trump lashes out on Truth Social, blames Biden

In a series of posts on Truth Social, Trump sought to deflect blame.

“This is Biden’s Stock Market, not Trump’s,” he wrote. “Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers. Our Country will boom, but we have to get rid of the Biden ‘Overhang.’”

He insisted that the downturn “has NOTHING TO DO WITH TARIFFS,” despite Commerce Department data indicating the opposite—that businesses accelerated imports to avoid his tariffs.

Inflation heats up as uncertainty clouds outlook

While Trump touted falling prices during a recent speech celebrating his 100th day in office, the GDP report told a different story. The personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred inflation gauge—rose 3.6% in Q1, up from 2.4% the previous quarter.

With economic growth faltering, inflation rising, and investor confidence shaken, all eyes are now on how the Trump administration handles trade and fiscal policy in the coming months

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Coca-Cola’s better-than-expected first-quarter earnings on Tuesday have reinforced investor confidence in its global, diversified strategy amid market volatility and trade concerns.

In a subdued earnings season, revenue reached $11.22 billion, narrowly topping Wall Street’s estimate of $11.14 billion, while earnings per share came in at 73 cents, just above the projected 71 cents.

The beverage company’s performance came as a contrast to peer PepsiCo, which has trimmed its full-year forecast, citing macroeconomic pressures.

Coca-Cola, on the other hand, reaffirmed its guidance for 2025, forecasting organic revenue growth of 5% to 6% and comparable earnings per share growth of 2% to 3%.

“Despite some pressure in key developed markets, the power of our global footprint allowed us to successfully navigate a complex external environment,” said CEO James Quincey.

This resilience comes at a time when broader consumer sentiment in the US remains soft.

The company’s relative earnings stability, greater international exposure, and high dividend yield are attracting fund flows in the current environment, wrote Garrett Nelson, senior equity analyst at CFRA Research.

Tariffs pose new tests in the second quarter

Heading into the next quarter, Coca-Cola warned of potential short-term “choppiness” due to trade conflicts.

While last year’s second quarter marked a particularly strong period, making year-over-year comparisons difficult, the company remains cautiously optimistic.

“We’re monitoring the tariff environment closely,” Quincey said, noting that while localized operations provide a buffer, supply chain inputs remain globally exposed.

Analysts believe any impact will likely be temporary and manageable. According to data compiled by LSEG, the average recommendation of 28 brokerages is “buy”, with a median price target being $78.

Analysts stay bullish despite tariff-related risks

Despite fresh trade tensions sparked by tariffs proposed by former President Donald Trump, Coca-Cola has not revised its outlook, although it did caution that certain input costs, such as aluminum and orange juice, could rise.

“Our operations are primarily local,” the company said in its earnings statement, but it acknowledged some volatility ahead, particularly in the US.

Still, analysts are broadly supportive of the company’s ability to manage these risks.

Kevin Grundy, senior research analyst at BNP Paribas Exane, said on Tuesday, “Earnings season has given investors little to get excited about… In contrast, Coca-Cola continues to hit on all cylinders and stands out fundamentally within the group.”

He reiterated Coca-Cola as his top pick.

RBC Capital Markets echoed that view, citing Coca-Cola’s advanced Revenue Growth Management (RGM) capabilities, including varied pack sizes that help maintain affordability while preserving margins.

RBC expects these tools to support performance into 2025. The brokerage rated the company “outperform”, with a price target of $76. The stock is currently trading at $73.

Piper Sandler said KO has tailwinds from strong industry growth, competitive advantages for gaining market share, an “all-weather” approach for all beverage occasions, and marketing focused on consumers and customers.

It has an “overweight” rating on the stock, with a PT of $80.

Jefferies noted that Coca-Cola’s recent final payment for dairy brand Fairlife would boost free cash flow into next year, strengthening its balance sheet further.

“Coca-Cola continues to manage and adapt through the more challenging operating environment,” Jefferies added, giving a price target of $83 with a ‘buy” rating.

ETFs with high Coca-Cola exposure gain interest

With Coca-Cola outperforming both its peers and broader benchmarks, analysts recommend investors could consider exchange-traded funds (ETFs) with significant KO weightings.

These include iShares U.S. Consumer Staples ETF (IYK), Vanguard Consumer Staples ETF (VDC), Fidelity Covington Trust MSCI Consumer Staples Index ETF (FSTA), and First Trust Nasdaq Food & Beverage ETF (FTXG).

Coca-Cola comprises between 8% and 11% of these ETFs, offering a diversified way for investors to gain exposure to the beverage giant’s momentum.

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Mexico’s economy grew more than expected in the first quarter of 2025, preliminary data from the national statistics agency INEGI showed on Wednesday.

GDP grew by 0.2%, against a flat growth forecast in a Reuters poll.

The slight recovery comes after a 0.6% contraction in the fourth quarter of last year and puts Latin America’s second-largest economy away from a technical recession, usually defined as two straight quarters of negative growth.

Although the results came as a positive surprise, economists remain cautious.

The increase was mostly driven by an increase in primary sector activity, while other significant sections of the economy exhibited symptoms of stagnation or contraction.

Agriculture-driven recovery masks underlying fragility

Agriculture, fishing, and mining saw an 8.1% increase, offsetting a slowdown in other industries.

At the same time, the secondary sector, encompassing manufacturing and industrial activity, decreased by 0.3%, and the tertiary sector, which includes services, stagnated.

Andres Abadia, Chief Latin America Economist at Pantheon Macroeconomics, said the quarter-on-quarter increase enabled Mexico to avoid a technical recession, but failed to change the wider picture of economic malaise.

He cited increased domestic uncertainty, restrictive financial conditions, and persistent risks from the US trade war, adding that leading indicators already suggest a difficult outlook.

President Donald Trump’s tariff threats have caused fresh trade tensions and added instability to the economy, particularly in Mexico, which relies largely on exports from the US.

Year-on-year growth beats estimates, but momentum weak

Mexico’s GDP grew by 0.8% year on year between January and March, slightly exceeding economists’ predictions of 0.6%.

This expansion was once again mostly driven by the robust performance of the primary sector.

However, analysts emphasised that the recovery is still unequal and vulnerable.

Kimberley Sperrfechter, Capital Economics’ emerging markets economist, remarked that the latest statistics indicate a poor start to the second quarter and show persistent economic malaise.

“This should pave the way for another 50 basis point rate cut at Banxico’s meeting next month,” Sperrfechter said, referring to the Mexican central bank.

If adopted, it would be the third straight interest rate drop, indicating ongoing monetary support even as inflation has begun to rise.

Policy levers and external pressure

With inflation beginning to pick up in early April, Banxico must strike a difficult balance between promoting growth and managing pricing pressures.

The central bank has already enacted substantial rate cuts in recent months to stimulate the economy, but their efficacy may be limited given ongoing external challenges.

The volatile political and trade environments, notably the possible influence of the US presidential election cycle and changing global demand patterns, add to the uncertainty.

Economists warn that without a broad-based rebound across sectors, Mexico’s economy would continue to struggle with low domestic demand and investment fear.

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The USD/JPY exchange rate rose for the third straight day after the latest Bank of Japan (BoJ) interest rate decision. It jumped to an intraday high of 143.67, up from the year-to-date low of 139.95. This article examines what to expect and why the broader downtrend is likely to persist as it forms an inverse cup and handle pattern.

BoJ interest rate decision

The USD/JPY pair tilted upward after the BoJ left interest rates unchanged at 0.50% as it observed the impact of Donald Trump’s tariffs on the Japanese economy. This decision was in line with what most analysts were expecting. 

The swap market expects that the BoJ will only hike interest rates later this year. Before the current crisis, market participants were expecting the bank to hike in the next few meetings since inflation remains high in the country. 

Japan is one of the countries most affected by Trump’s tariffs. He has implemented a 25% tariff on automobiles and their parts, which analysts see as an embargo on the country. 

A 25% tariff on Japanese vehicles, such as those made by Toyota, Nissan, and Honda, will make them unaffordable in the United States. It will also make them more expensive than those made in the US. 

Therefore, there is a likelihood that the Japanese economy will remain under pressure because of the vast amount of vehicles that it ships to the US. At the same time, these firms are dealing with high competition from EV companies like Zeekr and BYD in China and the Southeast Asian region.

Recent economic data indicate that the Japanese economy is not performing as well as expected. A report released on Wednesday showed that preliminary industrial production data decreased by 1.1% in March, following a 2.3% increase in the previous month. 

US nonfarm payrolls data ahead

The USD/JPY exchange rate rose because of the recent economic data from the United States that revealed that the economy was slowing.

US consumer confidence dropped sharply in April, leading Mark Zandi, the top economist at Moody’s to warn that the country was on the precipice of a recession.

Another data by the Bureau of Economic Analysis (BEA) showed that the US economy contracted by 0.3% in the first quarter.

US trade deficit surged in Q1 as companies rushed to buy goods ahead of tariffs. Indeed, the deficit with Japan jumped to over $63 billion.

The labor market is also softening as the private sector added just 61k jobs last month. Therefore, all eyes are on the upcoming official nonfarm payrolls data scheduled on Friday.

Economists expect the data to reveal that the economy added 120,000 jobs in April, with the unemployment rate remaining at 4.2%.

USD/JPY technical analysis

The daily chart shows that the USD/JPY exchange rate has been in a strong downtrend in the past few months.

While the pair has risen, there is a likelihood that it will resume the downtrend because it has formed an inverse cup and handle pattern. The ongoing recovery is part of the handle section of this pattern. 

Therefore, the pair will likely remain steady in the near term, and then it will have a bearish breakdown in the coming days. More downside will be confirmed when the pair drops below the lower side of the cup at 139.95.

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Oil prices were slightly lower on Thursday after sharp losses in the previous session due to prospects of higher supply and a slowing US economy. 

“Crude just can’t get an upside break,” said David Morrison, senior market analyst at Trade Nation. 

Crude oil’s daily MACD indicated a moderately oversold condition.

Morrison added:

But as seen repeatedly, ‘moderately oversold’ in the oil market will only get the bulls so far, as eventually any bounce soon runs out of puff, generally after a rally of no more than $5 or so.

Oil prices in April fell to their lowest levels in four years. The price of West Texas Intermediate crude oil on the New York Mercantile Exchange slipped to $55 a barrel, its lowest levels since 2021. 

Brent crude did not fare any better, with the benchmark falling more than 15% in April. According to analysts at ING Group, crude oil prices experienced their biggest monthly drop in April. 

At the time of writing, the price of WTI crude on NYMEX was at $58.13 a barrel, down 0.1%. Brent crude on the Intercontinental Exchange also fell 0.1% to $61.02 a barrel. 

OPEC to raise output

“Lingering tariff risks and expectations of OPEC+ loosening output curbs continue to pressure oil prices,” ING analysts said in a report. 

According to Reuters, Saudi Arabia has informed allies and industry experts of its unwillingness to support the oil market through supply reductions.

The country reportedly believes it can withstand an extended period of low oil prices.

OPEC+ sources indicate that several members will propose increasing output at an accelerated pace for the second month in a row during their June meeting. 

Eight OPEC+ nations are scheduled to convene on May 5 to determine their June production strategy.

Forward curve hints at falling prices

The near-term oil forward curves remain in backwardation, suggesting that an immediate oversupply is unlikely, according to Commerzbank AG’s commodity analyst Carsten Fritsch. 

However, the backwardation has narrowed.

The forward curve shows a decline until the close of 2025, followed by an upward trend.

“As a result, the price difference between the nearest contract and the contract maturing in seven-months is now somewhat larger than the difference between the nearest contract and the contract maturing in one year,” Fritsch said. 

Anticipated decreases in oil prices over the next few months are indicated by the forward curves.

“The contango structure starting from early 2026 may indicate that the oversupply will peak at the turn of the year, as the intended production increase of OPEC+ should be nearly completed by then, while demand could recover if the tariff conflict is solved by then,” Fritsch added. 

“There has never been sufficient upside momentum for oil to break out of its downtrend which has been building ever since the highs hit soon after Russia’s invasion of Ukraine,” Morrison said. 

He added:

The big question is how low prices need to go before producers start to cut back.

Demand 

The US economy, the largest oil consumer globally, experienced its first contraction in three years during the first quarter of 2025. 

This downturn was largely due to a surge in imports as businesses sought to bypass anticipated tariff increases, highlighting the destabilizing impact of President Donald Trump’s frequently unpredictable trade policies.

However, demand seems to be stable for Middle East crude grades. 

“Despite the recent weakness in the oil market, demand for Middle East crude appears to remain stable, with the market expecting Saudi Arabia to raise the official selling price by around US$0.3/bbl for Asian buyers for June deliveries,” ING analysts said. 

This would be the first increase in three months.

At the same time, competing supply from Iran has decreased due to stricter US sanctions. 

“The only moderate price increase is probably due to the significant expansion of oil supply,” Commerzbank’s Fritsch said. 

Saudi Arabia has significantly lowered the official selling price of its Arab Light crude for Asian markets for May shipments, marking the largest reduction (US$2.30 per barrel) since 2022.

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