Tariffs U-turn, market U-turn

The art of policymaking is a lot about setting expectations against which all future decisions are assessed. When President Trump famously introduced his extreme tariffs on ‘Liberation Day,’ markets were obviously concerned. Since then, resilience in US labour markets, better-than-expected earnings, and trade war de-escalation have boosted sentiment. Risk assets have rebounded, and bond yields risen. 

Whether this upside on risk assets is sustained depends on economic performance and clarity on trade policies. For bonds, pressure on the long end of the curve will remain due to fiscal issues/high debt notably in the US (not least because of Trump’s tax bill) and Japan. For the time being, we upgrade our growth projections for the US, EZ, and China, and downgraded US inflation. 

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Monica Defend

Monica Defend

Head of Amundi Investment Institute

Global policymaking is becoming increasingly nuanced. While the Fed will need to consider inflation expectations before cutting rates, the ECB is in a slightly better position, whereas the BOJ is likely to hike rates.

Monica Defend, Head of Amundi Investment Institute

Deficit concerns driving the long end

investment

Deficit concerns driving the long end

US CPI inflation and wage growth seem to be under control, but bond vigilantes are up and taking note of the high fiscal deficit and debt (huge amount of US debt maturing this year), and inflation expectations. The boost to economic growth from lower tariffs is also driving yields upwards. In an environment of a sharp increase in yields across the DM, we maintain our global and selective approach.

At the same time, we are monitoring the hard data coming out of Europe, particularly in Germany and UK, and how will the ECB and the BoE will respond. For the time being, we think ECB’s job is easier than the Fed’s, which is facing relatively high inflation risks. Overall, we remain mildly positive on duration, and keep our curve steepening stance in the US.


 

 

Ambiguity on tariffs will affect valuations

The temporary understanding between the US and China has provided relief to the markets, thus allowing for a rebound. However, corporate guidance from the earnings season confirms our view that more clarity is needed for businesses to make investment decisions and assess the impact on their future earnings. Any deterioration in labour markets and inflation expectations that stay high for long periods will likely affect spending patterns and stock valuations. 

As a result, volatility is likely to continue, and we aim to address this through our fundamentals driven bottom-up approach that compares current valuations with a company’s future earnings prospects. We find such quality businesses across Europe, the UK and in Asia. At the same time, we tend to minimise this volatility through exploring strong business models that will be less affected by the ongoing uncertainty around international trade.
 

Ambiguity on tariffs will affect valuations

stacking coins

De-escalation is supportive of EM

GIV MAY EM

De-escalation is supportive of EM

Fed easing and dollar weakening paint a positive picture for EM. We are also seeing growing optimism following the better-than-expected initial outcome of the US-China trade negotiations, but elements of worry remain. Issues such as the status of tariffs after the 90-day period, the unpredictability around President Trump’s negotiation, and the recent downgrade of US ratings may create volatility. 

In China, the sentiment has improved, and we are assessing how sustainable that is, as we progress along the negotiation period. At the same time, the absence of a fiscal bazooka prevents us from taking a strong position on the country yet. We maintain our bottom-up approach of selecting value across the EM world in equities as well as debt.

Rebalance in momentum-led markets

While the worst-case scenario in terms of tariffs on US and Chinese exports has been avoided, we think there is still huge uncertainty with respect to trade policies, growth/inflation, and earnings in H2. There are renewed concerns over fiscal deficit and government debt. For the time being, the US economy and labour markets are showing strength. Hence, we have tactically rebalanced our risk stance in markets, which are being driven by momentum currently. We also think investors should consider this as an opportunity to strengthen their hedges.
 

Rebalance in momentum-led markets

GIV May Multi asset

Changes vs previous month

  • Fixed income: more cautious on Japanese duration; slightly less positive on the EU.

  • Emerging markets: now positive on equities in EM Asia; marginally less optimistic on Indian stocks,  but long-term case remains strong.

  • Multi asset: upgraded DM equities tactically, with enhanced hedges. 

  • FX: downgraded GBP and upgraded USD to neutral, although we believe over the long term dollar weakness will persist.

2025-06-17

Global Investment Views- June 2025

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