WILL THE GLOBAL ECONOMY REMAIN RESILIENT IN THE WAKE OF GLOBAL TRADE UNCERTAINTIES?
EQUITY MARKETS
In early April, policy changes in the United States have impacted the global financial markets. The Trump administration’s proposal to implement tariffs on trading partners marked a departure from established trade norms. This announcement emerged at a precarious moment for the global economy, which was still navigating the aftermath of two seismic events: the COVID-19 pandemic and the supply disruptions brought on by the Russia–Ukraine conflict. While US macroeconomic indicators remained broadly supportive (anchored by robust employment and steady consumer activity), the potential for new trade shocks threatened to undermine the broader recovery.
The global trading system, long upheld by multilateral institutions such as the World Trade Organisation, now faced renewed fragmentation. If sustained, this shift towards economic nationalism could result in diminished global output and squeezed profit margins, altering long-term growth trajectories for many economies.
Investor sentiment deteriorated rapidly, as reflected in volatility indices. The VIX spiked to levels not witnessed since the height of the pandemic, surpassing the 50 mark, before easing as the administration signalled a more measured approach. The softening of the trade rhetoric, including a temporary 90-day reduction in tariff levels for most partners except China, helped calm markets mid-month.
Stock markets reacted sharply to these developments. The initial sell-off following the tariff proposal saw major benchmarks tumble, but some resilience emerged towards month-end. The Dow Jones Industrial Average declined by around 3 per cent, while China’s CSI 300 mirrored this with a similar drop, pushing it into negative territory for the year. The broader S&P 500 experienced a milder contraction of 0.7 per cent. Despite turbulence, the Nasdaq Composite managed a modest gain of 0.9 per cent, even as the AI-driven momentum that had supported the tech sector earlier in the year showed signs of fading.
In contrast, European equities demonstrated relative strength, buoyed by investor rotation away from US assets. The Euro Stoxx Index outpaced its American counterpart by about one percentage point. However, beneath the surface, a more cautious tone emerged. A review of forward earnings expectations suggested European corporates are facing greater earnings pressure than their US peers, with analysts revising forecasts downward over the coming year.
Across Asia, equity markets saw divergent performances in response to the evolving trade narrative. Tensions between Washington and Beijing weighed heavily on Chinese equities, with the CSI 300 posting a monthly loss of roughly 3 per cent. Meanwhile, early trade discussions between the US and Japan, as well as India, fostered investor optimism. The NIFTY 50 rose by 3.5 per cent in April, while Japan’s Nikkei 225 posted a 1.2 per cent gain. Indonesia stood out as the region’s top performer, with the Jakarta Stock Exchange surging by 5.6 per cent, supported by resilient domestic demand and investor appetite for emerging markets less exposed to the trade dispute.
In company news, Microsoft has reclaimed its position as the world’s most valuable public company, boosted by strong AI-driven cloud performance and resilience to Trump-era tariffs that hurt rivals like Apple and Amazon. Despite investor concerns, record Azure revenues and confidence in its software-centric strategy reassured markets. While peers struggle with tariff-induced costs and weakened consumer demand, Microsoft’s business-focused model and early AI partnerships have made it a standout amid Big Tech’s volatile earnings season.
KPMG has stepped down as auditor of P&O Ferries, citing unresolved issues that delayed the company’s 2022 accounts and saying it had completed minimal work on the overdue 2023 audit. In it’s resignation letter, the Big Four firm warned it couldn’t meet the required audit standards within P&O’s preferred timeline, highlighting lingering concerns from the prior year’s delays. P&O, still grappling with financial strain, regulatory breaches, and fallout from its controversial mass staff layoffs, said it aims to file its 2023 accounts promptly.
Pranav Adani, nephew of tycoon Gautam Adani, has denied breaching insider trading laws and is seeking to settle allegations by India’s market regulator without admitting wrongdoing. The claims, linked to Adani Group’s $3.5bn acquisition of SB Energy, come as scrutiny intensifies around the family following US criminal charges against Gautam Adani last year.
NatWest reported a 36% surge in first-quarter profits to £1.8bn, outperforming expectations despite setting aside £189mn for potential bad loans linked to economic uncertainty stemming from Trump’s trade policies. Stronger mortgage lending and rising deposits boosted revenues to £4bn, as the bank, soon to be fully privatised, signalled confidence in customer resilience and hinted at future acquisitions post-government exit.
Standard Chartered posted a 10% rise in first-quarter pre-tax profits to $2.1bn, fuelled by strong growth in wealth management income, though it cautioned that escalating US trade tariffs could weigh on client activity. While the bank raised its forecast for a prolonged global trade war and increased related credit provisions, it remained confident in its cross-border strategy, targeting affluent clients amid heightened geopolitical and economic uncertainty.
Apple CEO, Tim Cook warned that Trump’s tariffs are expected to add $900mn in costs for the June quarter, underscoring the potential significant impact of US trade policy on corporate margins across the tech sector. While iPhone demand remains solid and quarterly results beat expectations, Cook said the unpredictability of tariffs beyond June is making long-term cost forecasting increasingly difficult for Apple.
Amazon issued a cautious outlook for the second quarter, citing rising costs from Trump’s tariffs and forecasting operating income below analyst expectations, as trade tensions weigh on its profitability. Despite steady demand and growth in cloud and advertising, the company warned of earnings risks tied to global trade policy, while pushing forward with aggressive AI-related investment plans amid rising cost pressures.
SECTOR PERFORMANCE
The energy sector across both the United States and Europe faced notable headwinds, as a pronounced downturn in both spot and futures prices led to losses of roughly 13 per cent in each region. The slump reflected broader commodity market pressures and investor unease around global demand prospects. In contrast, European real estate assets, which tend to be more sensitive to interest rate dynamics, emerged as one of the month’s strongest performers. The asset class delivered a solid return of approximately 11 per cent, benefiting from stabilising yields and rotation into perceived safe havens. However, this momentum did not translate across the Atlantic. In the United States, the largest segment of the real estate market registered a modest loss of about 1.2 per cent, signalling regional divergence in sector performance.
European consumer discretionary stocks struggled during the period, weighed down by growing concerns over global economic fragility. A near 4 per cent decline reflected investor caution as market participants factored in the risk of a downturn. In the US, sentiment in the same sector steadied after a volatile March. Equity prices remained largely flat in April, suggesting a temporary pause in negative momentum. Healthcare equities in the US came under renewed pressure, falling by 3.7 per cent, amid heightened political scrutiny and speculation over incoming tariffs aimed at reshoring production. European healthcare names also faced a challenging environment, declining by approximately 1.8 per cent, as defensiveness in the sector was offset by policy uncertainty.
Technology stocks presented a mixed picture. In the US, the sector bounced back with a gain of 1.6 per cent following a difficult start to the year. However, European tech names failed to mirror this recovery, ending the month broadly unchanged. Despite the stall in April, European technology remains ahead on a year-to-date basis, outperforming its US peers by around six percentage points. Overall, the shifts observed across equity sectors suggest a broad-based move toward more defensive positioning, with investors in both markets gravitating toward lower-beta sectors amid ongoing macroeconomic and geopolitical volatility.
CENTRAL BANKING AND GEO-POLITICS
US Treasury Secretary Scott Bessent suggested that the bond market is signalling a need for interest rate cuts, as two-year Treasury yields now sit below the Federal Reserve’s target rate. Yields have been trending downward, with the two-year note notably undercutting the Fed's effective rate by around 75 basis points. Investors increasingly expect rate reductions this year, anticipating a full percentage point cut. Market sentiment has shifted in response to economic contraction and uncertainty caused by President Trump’s sweeping import tariffs. Attention has turned to falling 10-year yields, which more directly affect consumer and business borrowing costs, such as mortgages.
In its latest Financial Stability Report, the Federal Reserve remarked that asset valuations remained elevated despite April’s market volatility, as equity prices still high relative to earnings forecasts and government bond yield sitting near multi-year highs. Credit spreads on corporate debt were moderate by historical standards, while real estate valuations (both residential and commercial) showed signs of strain but also tentative stabilisation. Household and business debt levels continued to ease relative to GDP, though stress indicators such as rising consumer loan delinquencies remain more pronounced for lower-income borrowers.
Financial sector leverage persisted, with hedge fund borrowing at decade highs and certain banks exposed to commercial property risks, though overall capital buffers remained solid. Short-term funding vulnerabilities have moderated, with reduced reliance on uninsured bank deposits and lower risk in money market funds, though some investment vehicles still pose redemption risks under stress.
Following a stronger-than-expected US jobs report, Donald Trump took to social media urging the Federal Reserve to slash interest rates, claiming inflation was no longer a concern. The economy added 177,000 jobs in April, outpacing forecasts and prompting renewed debate over the Fed’s next move. Trump reiterated his criticism of Chair Jerome Powell for being too cautious, especially given the economic lift rate cuts could provide. The Fed’s reluctance stems partly from concerns that tariffs could reignite inflationary pressures, making premature cuts risky. Nonetheless, many analysts believe that lowering rates could help restore business sentiment and stimulate broader economic activity.
Eurozone inflation held at 2.2% in April, slightly above the ECB’s target, as rising services prices offset falling energy costs linked to weaker oil markets. Analysts had anticipated a marginal decline, but the figures are unlikely to shift the ECB’s outlook, with inflation still expected to ease back to 2% later this year. Meanwhile, eurozone manufacturing showed signs of stabilising, though concerns persist over heightened competition from China amid shifting global trade dynamics.
The economic damage on both sides of the US-China trade standoff is reviving hopes of renewed negotiations, as shrinking growth and falling confidence prompt calls for dialogue.
US GDP contracted early this year due to a rush in imports ahead of new tariffs, while Chinese manufacturing activity plunged, with export demand hitting multi-year lows. Talks remain uncertain, as Beijing pushes for a credible US negotiator backed by Trump, amid fears of growing diplomatic isolation. A surprise reshuffle elevating Marco Rubio’s influence (despite being sanctioned by China) adds tension, especially around sensitive topics like Taiwan. Markets anticipate negotiations soon, though experts warn the path will be turbulent, with tariffs unlikely to stay at current levels for long.
COMMODITIES
Commodity markets were not immune to the turbulence sparked by the recent wave of protectionist policies unveiled by President Donald Trump under the so-called ‘Liberation Day’ trade agenda. With the global trade framework facing unprecedented upheaval and the U.S. gradually distancing itself from longstanding trade partners, investor sentiment turned markedly risk averse. As fears of a potential economic contraction grew, commodities broadly declined by around 5 per cent in April, reversing gains seen in previous months. Among the hardest hit were energy commodities, which experienced pronounced declines amid ongoing macroeconomic uncertainty and geopolitical developments.
Crude oil benchmarks—WTI and Brent—along with natural gas, all suffered double-digit losses, with prices dropping to levels near $60 per barrel. The persistent downward trend was driven by a confluence of factors: a slowdown in global demand, surplus inventory in the United States, and signals from OPEC+ regarding potential production increases, led by Saudi Arabia. Base metals were not spared from the negative sentiment, with copper and nickel each shedding roughly 5 per cent, and iron ore down by around 4 per cent. The escalation in tariffs between the US and China—two dominant players in global metals trade—has dampened demand expectations and exacerbated concerns about a prolonged slowdown in industrial activity. In contrast to the broader commodity complex, precious metals provided a rare source of optimism for investors. Gold extended its upward trajectory, climbing approximately 5 per cent for the month and briefly touching the $3,500 mark, as market participants sought refuge in safe-haven assets amid rising geopolitical and economic volatility.
CURRENCIES
The US dollar continued its downward trajectory in April, falling by 4.5 per cent and extending a string of monthly losses that have characterised 2025 to date. This latest decline represented the sharpest monthly drop so far this year, underscoring growing investor scepticism about the greenback’s dominance in an increasingly uncertain global economic landscape. In response, market participants have been steadily reallocating capital into alternative reserve currencies.
Demand for traditionally stable currencies surged, with the Swiss franc leading the way—appreciating by over 7 per cent during the month. The Japanese yen and the euro also posted strong gains, each rising by roughly 4.8 per cent against the US dollar, reflecting a broad-based weakening of the dollar across major currency pairs. Sterling delivered a more nuanced performance. It lost ground to key European and Asian currencies, including the franc, yen, and euro, but managed to strengthen relative to the US dollar, Brazilian real, and Norwegian krone. This divergence reflects regional differences in investor sentiment and macroeconomic fundamentals. Meanwhile, the euro registered widespread gains against most benchmark currencies, buoyed by relative economic stability in the eurozone. However, it did cede ground to the Swiss franc, which benefitted from its status as a haven asset amid heightened global market volatility.
OVERALL
In the face of intensifying global trade tensions and heightened geopolitical uncertainty, the global economy has shown signs of resilience, albeit with emerging vulnerabilities. Equity markets, though initially rattled by sweeping tariff measures, stabilised somewhat by month-end, with regional divergence in performance and a clear rotation towards defensiveness. Sector performance highlighted shifting investor priorities, while commodities and currencies reflected the broader risk-off sentiment triggered by fears of economic decoupling. Central banks remain cautious, balancing inflation concerns with growing pressure to ease policy, particularly in light of softening economic data. As the world’s two largest economies edge closer to negotiations, the outlook remains clouded by policy unpredictability as markets appear to be bracing for continued volatility rather than a systemic shock.
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