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Investment Monthly

Bond vigilantes are back
06 June 2025
    Download the full reportPDF, 4.07MB

    Key takeaways

    • Our baseline scenario is that tariffs settle close to current levels. US growth drops below trend while inflation rises
    • But policy uncertainty remains high, creating the risk of a sharper downturn and elevated cross asset market volatility
    • In China, policy support measures for households, signs of stabilisation in the property market, and expansionary fiscal policy should help mitigate lingering external risks
    • Trade disruption is likely to have diverging effects on Asian economies while macro policies should be supportive for growth

    Macro Outlook

    • Our baseline scenario is that tariffs settle close to current levels. US growth drops below trend while inflation rises
    • But policy uncertainty remains high, creating the risk of a sharper downturn and elevated cross asset market volatility
    • In China, policy support measures for households, signs of stabilisation in the property market, and expansionary fiscal policy should help mitigate lingering external risks
    • Trade disruption is likely to have diverging effects on Asian economies while macro policies should be supportive for growth

    Policy Outlook

    • The Fed is in “wait and see” mode. We expect some further gradual policy easing later this year, as rising growth concerns offset inflation worries
    • The ECB policy rate should move into accommodative territory. German fiscal stimulus is likely to support growth in 2026
    • Elevated global trade uncertainty is expected to prompt diverging policy responses across Asia. The Indian and Korean central banks are expected to ease
    • Chinese authorities have pledged a “more proactive” macro policy but may limit fiscal measures on a substantial de-escalation of US-China tariffs