Monthly Report May 2025
With new tariffs and a declared “Liberation Day,” Washington shifts from cooperation to confrontation. The global trade system is under pressure – and markets are offering a glimpse of a more uncertain world order.
Since President Trump’s declaration of “Liberation Day” on April 2, the United States’ new trade and tariff policy has taken centre stage in global financial markets. At the heart of this shift lies a reversion to bilateral deal-making, flanked by tariff threats against key trading partners — and swift retaliatory measures.
The initial fallout saw capital flow out of US financial assets and risk markets more broadly. Beneficiaries included traditional safe havens: gold, German Bunds, the Swiss franc, the Japanese yen – and, somewhat unexpectedly, the euro. Between April 2 and April 8, the S&P 500 shed over 12%, falling nearly 19% from its February 19 peak. A 90-day suspension of punitive tariffs announced on April 9 triggered a sharp relief rally.
The VIX volatility index spiked above 50, up from below 20 at the end of March. More conciliatory rhetoric from Treasury Secretary Bessent, alongside the tariff moratorium, contributed to a partial return of risk appetite.
As of May 2, the S&P 500 was down 3.3% year-to-date, while the Nasdaq Composite had declined 6.9%. The so-called “Magnificent Seven” bore the brunt, falling 11.7% (as measured by the Roundhill Magnificent Seven ETF). In contrast, European equities posted gains: the STOXX 600 rose 5.7%, while Switzerland’s SLI advanced 3.7%. Asian benchmarks lagged, with the Nikkei 225 down 7.7% and the Shanghai Composite off 2.2%.
US 10-year Treasury yields stood at 4.30%, down from 4.57% at the end of 2024, though trade headlines briefly drove yields back toward 4.50%. In Germany, Bund yields reached 2.90% in March before retreating to 2.52% in early May.
Gold rallied sharply – up 23% year-to-date, hitting a new all-time high near $3,500 per ounce on April 21. The US dollar, by contrast, weakened markedly: the DXY index declined 7.8%, with the greenback losing 8.9% against the Swiss franc, 9.1% versus the euro, and 7.8% against the yen.
Seasonal Tailwinds for the Dollar in May
Historically, May tends to be a strong month for the US dollar. EUR/USD and AUD/USD often exhibit seasonal weakness, while commodities such as oil and copper typically find support. Equity markets tend to perform well in the first half of the month, before weakening – often leaving May as a mixed bag overall.
After four months of dollar weakness, a technical rebound may be on the cards, ahead of the seasonally softer months of June and July.
“You Can’t Turn a Fish Soup Back into an Aquarium”
With this metaphor, former Polish President Lech Wałęsa once captured the irreversibility of fundamental change. The same might now be said of the global trading system: even if recently announced tariffs are only partially implemented, Washington’s erratic trade policy is creating strategic uncertainty – eroding not only credibility but also America’s soft power.
A global stagflationary backdrop is taking shape. Headline inflation may edge lower in April, but base effects and tariffs are likely to reverse that trend in the months ahead. Meanwhile, growth is losing momentum. According to Kalshi, the probability of a US recession in 2025 now stands at 64% (as of 2 May 2025; www.kalshi.com).
Cautious Optimism with a Regional Tilt
The recent equity rally may be running out of steam. One area with upside surprise potential is Latin America. Policy rates remain elevated – over 14% in Brazil – creating scope for easing. Growth indicators are holding up, and trade ties with the US, China and Europe appear well diversified. The new US administration has also repeatedly underlined the region’s geostrategic importance.
In fixed income, we favour intermediate maturities (3–7 years). Amid weakening growth, credit spreads are likely to widen. Investment-grade bonds remain preferable to high yield, with emerging market hard-currency debt providing selective opportunities. Inflation-linked bonds continue to offer protection against unexpected price shocks.
We expect gold to consolidate in the short term but maintain a strategic allocation. Geopolitical tensions continue to underpin the medium- to long-term outlook.
While the dollar’s recent slump may pause for seasonal reasons, its longer-term trajectory remains down.
Trend-following strategies (CTAs) have struggled with recent market whipsaws. Historically, such drawdowns often precede periods of outsized performance. We are maintaining – and potentially increasing – our allocation.
The global economic order is undergoing a profound shift. America’s new trade posture risks turning allies and partners into mere customers. In doing so, it ceases to lead and begins to rule – and rulers, sooner or later, face rebellion. A return to the old order looks increasingly unlikely.