Risk-Off Sentiment Spreads Across Global Markets
Macro
The latest U.S. economic data releases, combined with Donald Trump’s trade protectionist tariffs, have cast a shadow of uncertainty over investors. Softer-than-expected consumer and producer price inflation in March has reinforced dovish sentiment, fuelling heightened recession concerns [1]. With Trump’s new tariff policies potentially adding further pressure to economic growth, the risk of a downturn is now significantly higher than last year. Markets are now pricing in 85 basis points of Federal Reserve rate cuts in 2025—up from 75 basis points previously—amid growing bets on weakening U.S. economic momentum [2].
In Europe, the European Central Bank (ECB) has lowered its deposit rate to 2.5 per cent, easing for the sixth time since June 2024 to stimulate the slowing economy [3]. Amid persistent trade policy uncertainty and sluggish investment activity, the ECB downgraded its growth forecasts, now projecting 0.9% GDP growth for 2025 (down from 1.1%), followed by 1.2% in 2026 and 1.3% in 2027. The downward revision reflects weaker export demand, subdued business investment, and broader policy uncertainty, all of which continue to weigh on economic momentum [4].
Meanwhile, we have observed that China is taking proactive steps to revitalize domestic consumption as a key driver of economic expansion. The government has announced a plan to revitalize domestic consumption by focusing on raising incomes, stabilizing the real estate and stock markets, and improving medical and pensions services [5]. These efforts signify a strategic shift towards a consumption-driven growth model, complementing previous industrial-focused policies [6].
Equities
US equities have seen its biggest self-off in months as investors are worried about the impact of Trump’s latest tariff threats on the global economy, where Nasdaq and the equity benchmark S&P 500 posted their biggest one-day percentage drop since September 2022 [7]. The equity benchmark is trading below its record closing high of 6,144.15 hit last month, where technology behemoths Apple Inc., Nvidia Corp. and Alphabet Inc. were among the biggest contributors to the index’s losses [8].
With heightened anxiety and uncertainty, low-volatility defensive stocks appear to have outperformed the overall market. Two of the largest low-volatility exchange-traded funds — the Invesco S&P 500 Low-Volatility ETF and the MSCI USA Min-Vol Factor ETF — are clocking their best relative performances in a few years [9].
Moving to Asia, it appears that uncertainty over Trump’s economic policies has led to investors diversifying into Asia markets, seeking stability and growth opportunities outside the United States [11]. As a result, benchmarks in China and Hong Kong have been rallying, driven by capital inflows, improving economic fundamentals, and policy tailwinds. Hong Kong’s Hang Seng benchmark has surged about 18% since Donald Trump assumed the presidency, making it one of the world’s top equity performers whereas the S&P 500 Index has slumped [12].
Fixed Income
The Federal Reserve kept its benchmark interest rate unchanged at 4.25% – 4.50% on 19 March 2025, signalling a cautious approach amid persistent inflation and geopolitical uncertainties [13].
Meanwhile, treasury yields have experienced notable fluctuations, reflecting investor sentiment and economic indicators. The 1-year Treasury rate edged up by 3 basis points to 4.09%, while the 30-year Treasury yield decreased by 8 basis points to 4.55% over the span of March. This flattening of the yield curve suggests market anticipation of slower economic growth, prompting a shift towards longer-duration assets [14].
Despite tariffs uncertainty, we observed that Investment Grade (IG) bonds continue to serve as a defensive hedge in investor portfolios. The recent healthy widening of credit spreads has enhanced their relative value, offering not only downside protection but also the added benefit of attractive coupon carries in the current environment [15].
FX
The US dollar has remained volatile throughout March, as investors weigh the potential economic implications of President Trump’s new tariff policies. We have observed that Market participants are adopting a cautious, wait-and-see approach ahead of April 2nd, when reciprocal tariffs are anticipated to be enforced. These tariffs, which target key US trading partners, have raised concerns about a possible slowdown in global trade and economic retaliation [16].
On March 20, 2025, the Swiss National Bank (SNB) reduced its key policy interest rate by 25 basis points to 0.25%, aiming to address persistent low inflation [17]. This move caused the Switzerland’s franc to weaken against the dollar and euro [18].
Gold, which serves as a hedge against economic instability and currency devaluation, saw prices passing $3,000 an ounce for the first time ever in March 2025 [19]. This milestone was driven by mounting global economic fragility and a surge in central bank purchases, reflecting a broader shift toward safe-haven assets [20].
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Source:
[1] Consumer Price Index rises 2.8% in February vs. 2.9% expected
[2] Stocks steady as calm returns to markets – The Irish Times
[3] ECB cuts interest rates and keeps door ajar to more easing – The Business Times
[4] ECB Cuts Rates and Warns of Trade War Risks | Morningstar
[5] China announces plan to boost domestic consumption
[6] China unveils plan to ‘vigorously boost’ weak consumption
[7] NASDAQ Composite Falls 4.00% to 17468.32, Largest One-day Point Decline Since March 2020 — Data Talk | Morningstar
[8] US Stocks on Doorstep of Correction After Volatile Trading – Bloomberg
[9] Market Turmoil Pushes Low-Volatility Stocks Into Driver’s Seat – Bloomberg
[10] Market Turmoil Pushes Low-Volatility Stocks Into Driver’s Seat – Bloomberg
[11] Stock Market Today: Dow, S&P Live Updates for March 19 – Bloomberg
[12] Amundi Says Investors See Better Valuations in China Than US – Bloomberg
[13] US Fed Meeting Highlights: Federal Reserve keeps interest rate unchanged, sees slower growth
[14] Weekly Fixed Income Market Update: March 20, 2025 – Income Research + Management
[15] UOB Private Bank dated 14 March 2025
[16] Forex – March 2025
[17] Swiss National Bank flags economic uncertainty after latest rate cut | Reuters
[18] Swiss franc falls as SNB cuts rates | LGT
[19] Gold hits record high on safe-haven demand; Fed decision in focus
[20] Gold price hits record $3,000 per ounce | CNN Business
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