Global markets face turbulent start amid tariff concerns, but outlook remains cautious

By Newsdesk

June 03 2025
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Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks.

Global markets face turbulent start amid tariff concerns, but outlook remains cautious

However, a pause on most tariffs has diminished those concerns, according to State Street Global Advisors' 2025 Midyear Global Market Outlook released on Monday.

The investment management firm said it retained a cautious outlook, emphasising diversification of exposures and staying alert for opportunities during any drawdown periods.

State Street Global Advisors global chief investment officer Lori Heinel said much had changed since the beginning of the year.

"After a turbulent period that saw episodic swings in both equities and bonds in response to wide-ranging executive orders and the announcement of higher-than-expected tariffs, financial markets have since stabilised with the tariff imposition paused to allow for trade negotiations," she said.

The firm said there was now greater confidence that tariff levels would settle well below the original headline levels that spooked markets.

State Street maintained its growth forecasts and projections for central bank rate cuts, while recognising that tariffs at the lower end of the range would likely still bring some inflationary pressures in the US.

The firm said Europe's pledge to spend more on infrastructure and defence was a positive, bolstered by Germany easing its limits on government borrowing.

State Street chief economist Simona Mocuta said the firm did not anticipate a US recession, with European growth forecasts little changed and global growth expected to hover near trend.

"The 90-day delay in reciprocal tariff implementation (initially excluding China) is just one example; the changes to the Ukraine minerals deal that ultimately allowed for its signing is another," she said.

"The start of US-China talks suggests the potential for significant easing in that tit-for-tat tariff war as well."

Ms Mocuta said something especially important and positive had emerged from the chaos of recent months - the reform of the German debt brake.

"It speaks to a narrowing of the US growth outperformance and a more balanced global growth distribution, both of which are welcome," she said.

State Street head of macro policy research Elliot Hentov said the balance of risks had changed more dramatically than forecasts.

"The path to a soft landing was quite wide three months ago; it has since narrowed considerably. But it remains open," he said.

The firm said the bond market would be sensitive to US debt sustainability considerations, with the Trump administration promising a pro-growth agenda centred around fiscal stimulus.

For equities, State Street said uncertainty clouded the outlook as policy from Washington and broader geopolitical developments left unanswered questions.

The firm said fundamentals did not favour European equities, despite their strong start to 2025, while the US was hovering around a 9 per cent earnings growth estimate in 2025.

In fixed income, State Street retained its constructive view despite a turbulent start to the year for many bond markets.

For commodities, the firm held an optimistic view on precious metals, particularly gold, saying the main forces that had driven gold prices higher remained active.

State Street manages $4.7 trillion in assets under management globally.

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