Insights

Tariffs, Tech, and Shifting Economic Landscapes

Macro

Two months into President Trump’s administration, global markets are already experiencing heightened volatility driven by escalating global uncertainty and political tensions.

In the U.S., Trump has implemented a series of aggressive policy shifts, most notably imposing tariffs on international trade. On February 13, 2025, President Trump signed an executive order raising U.S. import tariffs to match those imposed by other nations [1]. This move, aimed at addressing trade imbalances, has fueled concerns over potential economic slowdowns, inflationary pressures, and retaliatory trade measures from key partners. With the threat of rising inflation, the Fed has paused rate cuts to evaluate the economic impact of tariffs. [2]

Meanwhile, Asia has seen a notable market resurgence, particularly in China. Chinese equities have rebounded sharply, climbing 26.5% from January lows [3]. This rebound has been fueled by substantial technological advancements from companies like DeepSeek, leading to many investors reassessing the perceived technological gap between China and the rest of the world [4]. President Xi Jinping’s meeting with e-commerce icon Jack Ma has further solidified this positive sentiment. A BNP survey found that global investors are warming again to China hedge funds after pulling capital out of them in the past two years, with 7% of respondents indicated plans to increase their allocations to China-focused funds [5]

Japan’s economy has also demonstrated resilience, with GDP growing at an annual rate of 2.8%, compared to a revised 1.7% clip in the previous period and beating the 1.1% consensus estimate. Japan’s economy outperformed forecasts as business spending and net trade helped fuel a third straight quarter of growth that will keep the Bank of Japan on track for further interest rate hikes [6].

This gives the central bank authorities confidence they can continue to look for opportunities to unwind the BOJ’s ultra-loose policy settings with gradual rate hikes, where 56% of 45 BOJ watchers expect the next hike to come in July [7].

Equities

Global equity markets continue to navigate mixed signals, with corporate earnings shaping investor sentiment. U.S. indices, including the S&P 500 and Nasdaq, remain buoyed by the AI boom and economic resilience, while European markets surge to new highs [8]

With all eyes on China, the Hang Seng China Enterprises reached its highest level since February 2022, fueled by DeepSeek and Xi-Jack Ma chat, where prominent entrepreneurs including Ma have been invited to meet the nation’s top leaders. The potential show of support for the private sector coincides with the recent surge in equities in Hong Kong, driven by growing capabilities in artificial intelligence [9]. Alibaba’s shares notably risen approximately 60% since January as they posted its fastest pace of revenue growth in more than a year [10].

Despite the recent uptrend, the MSCI China Index is at around half of its February 2021 peak. The gauge is valued at almost 12 times estimated earnings, against around 26 times for the S&P 500 Index [11].

Fixed Income

We are of the view that ongoing global trade tensions might have kept the Fed on a wait-and-see approach to monetary policy. In recent congressional testimony, Chairman Powell’s emphasised that the US central bank is in no hurry to cut rates. President Trump’s policy mix of light touch regulation and lower taxes, coupled with immigration controls and the threat of tariffs may keep growth and inflation more elevated, possibly indicating little prospect of a rate cut before June [12].

On the other hand, Asia and US Investment Grade Bonds (IG) continue to trade near record tights despite tariff tensions and rising geopolitical risks. Markets remain wary of reflation risks arising from US trade policy. Attractive yields do persist in the IG space and continue to provide opportunities to lock in quality income for longer. These bonds may also offer the safety and stability of high credit quality, making them particularly appealing in an uncertain environment [13].

FX

In February 2025, we saw the U.S. dollar (USD) fall against major currencies as investors are taking a step back to reassess President Donald Trump’s latest tariff plans [14]. The USD is expected to remain rangebound in March 2025 as markets digest the economic implications of President Donald Trump’s proposed tariffs. The announcement of potential new tariffs on key trading partners has fueled concerns over global trade tensions, creating uncertainty in financial markets.

In Japan, we also saw the yen hit its strongest level against the dollar since December 2024, where it traded at 149.54 against the dollar [15]. The yen’s appreciation has been driven by expectations of policy normalization from the Bank of Japan (BoJ), with markets speculating that the central bank could further scale back its ultra-loose monetary policy in 2025. Additionally, geopolitical risks and concerns over U.S. trade policies have fueled demand for the JPY, as investors look for stability in risk-off environments.

Gold also continued its upward trajectory, rising above $2,900 per ounce in February 2025, hovering near its all-time high as escalating fears of a trade war drove investors toward safe-haven assets [16]. Analysts at UBS project that gold could climb to $3,000, as demand remains strong amid geopolitical tensions and concerns over global growth [17]. As market volatility persists, gold is expected to retain its status as a hedge against economic instability and a key safe-haven asset for investors navigating the uncertain macroeconomic landscape.

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Source:

[1] Donald Trump unveils ‘reciprocal’ tariff plan to hit trade partners
[2] Fed to wait for months on next rate cut as tariffs risk inflation flare up: Reuters poll | Reuters
[3] DeepSeek’s rise fuels rally in China’s markets while India’s allure diminishes
[4] China’s tech stocks enter bull market after DeepSeek breakthrough
[5] China Hedge Funds Tempt Investors Who Pulled Cash for Years – Bloomberg
[6] Japan Economy Grows For a Third Straight Quarter on Investment – Bloomberg
[7] BOJ Watchers See Ueda Waiting Another Six Months for Next Interest Rate Hike – Bloomberg
[8] February 2025 Index Market Overview: Navigating Market Uncertainty | OANDA – Forex, CFDs, Stocks, ETFs – Trading Broker & App
[9] Xi-Jack Ma Chat Seen as Next Catalyst for Blistering China Rally – Bloomberg
[10] 9988: Alibaba Group Holding Ltd Stock Price Quote – Hong Kong – Bloomberg
[11] China Hedge Funds Tempt Investors Who Pulled Cash for Years – Bloomberg
[12] US Fed remains inclined to cut rates, but is in no hurry | snaps | ING Think
[13] UOB Private Bank dated 14 February 2025
[14] Dollar hits year-to-date lows as bulls get nervous; yen retreats from high | Reuters
[15] Yen Advances Past 150 per Dollar as BOJ Rate-Hike Bets Ramp Up – Bloomberg
[16] Gold makes it way towards $3,000 after President Trump calls Ukraine dictatorship
[17] Gold gains on softer dollar, Trump tariff threats | Reuters
[18] Gold hits new record high on tariff worries, exchange-traded fund inflows | Reuters