Macro Outlook: Trade Escalation and Market Impact
In May, the Trump administration adopted a notably aggressive stance on tariffs, alternating between new impositions and temporary suspensions. This approach has heightened volatility in financial markets and raised concerns about the direction of U.S. trade policy.
The stated objectives include increasing fiscal revenues, protecting manufacturing jobs, promoting economic self-sufficiency, and reducing trade deficits. However, recent market reactions have highlighted the challenge of pursuing all these goals simultaneously. Investors are increasingly concerned that tariffs may exacerbate certain vulnerabilities and inflict short-term economic damage.
While signs of openness to dialogue have emerged, the administration continues to favor a hardline, tariff-based strategy, albeit with more attention to short-term impacts. By year-end, the effective average tariff rate is expected to stabilize around 15%, reflecting a combination of baseline duties and targeted measures—especially against China. These tariffs could generate over USD 300 billion in annual revenue (approximately 1.0–1.5% of GDP), though their net effect on deficit reduction remains limited, particularly in the face of mounting fiscal pressures.
Trump’s “One, Big, Beautiful Bill” envisions increased defense spending, new tax cuts, and reduced social benefits, necessitating a USD 4 trillion debt ceiling increase and adding an estimated USD 3.1 trillion to national debt by 2034. While tariff revenues may provide partial support, they are not a structural solution.
Investor sentiment remains fragile amid expanding Treasury issuance and persistent inflation concerns. In this environment, rising yields pose a risk to both bonds and equities. Nonetheless, we continue to see value in investment-grade debt, reinforcing a defensive approach to equity markets.
Fixed Income: Seeking Durable Yield Amid Uncertainty
Following a renewed wave of recession fears in April, May presents attractive opportunities for investors seeking stable income in an environment of elevated uncertainty. U.S. fiscal risks remain elevated, and yields may rise further, yet current levels offer a compelling entry point for high-quality bond exposure.
We favor medium-duration investment-grade bonds, which continue to offer an appealing risk-return profile while serving as a hedge in the event of economic deterioration. Close attention to currency risks remains essential, as does a cautious stance toward credit. While higher yields have enhanced the appeal of riskier segments, visibility remains limited. Accordingly, we maintain a preference for conservative income strategies. Credit spreads still appear tight, and we anticipate rising corporate default rates over the medium term. Should yields increase in a disorderly manner, we expect a meaningful policy response from central banks.
Equities: Navigating Volatility and Rebalancing Opportunities
Ongoing volatility and trade-related uncertainty suggest a need to reassess equity allocations. Market pullbacks can offer opportunities to realign portfolios with long-term investment objectives.
In Q1, the technology sector continued to lead market gains, supported by strong and improving earnings momentum. We retain a positive view on the sector. At the same time, euro area equities remain significantly undervalued relative to their U.S. counterparts, currently trading at a ~20% discount compared to their 15-year historical median. This valuation gap presents a potential upside, reinforcing our preference for European equities as a diversification tool within global equity exposure.
Nonetheless, we believe that ongoing trade tensions and tariff-related volatility will continue to weigh on corporate profitability, requiring a cautious positioning in equity markets.
Commodities: Constructive View on Gold, Tactical Positioning in Platinum
Gold has shown signs of stabilization around the USD 3,400/oz level, reaffirming its role as a safe-haven asset in a complex macroeconomic and geopolitical environment. Our outlook on the precious metal remains constructive, underpinned by sustained central bank buying, global economic uncertainty, and its strategic function as a geopolitical hedge—particularly amid heightened tensions in the Middle East.
In parallel, we have introduced a tactical allocation to platinum within our asset mix. This move is supported by expectations of potential supply-side constraints and signs of cyclical recovery in industrial demand—factors that could support a revaluation of the metal in the coming months.