
Market Perspectives May 2025
With financial markets highly volatile, discover what might lie ahead for investors this year in May’s edition of Market Perspectives, the monthly investment strategy update from Barclays Private Bank.
Macro
Lukas Gehrig, Head of Quant Macro & Thematic Strategy, Zurich, Switzerland; Nikola Vasiljevic, Head of Global Asset Allocation, Zurich, Switzerland
Please note: This article is more technical in nature than our typical articles, and may require some background knowledge and experience in investing to understand the themes that we explore below.
All data referenced in this article is sourced from LSEG Datastream unless otherwise stated, and is accurate at the time of publishing.
The US unveiled a flurry of wide-ranging tariff announcements in April, on its so-called ‘Liberation Day’, sparking chaos in financial markets and overseas capitals. In less exciting times, it is macroeconomic data, such as the nonfarm payrolls or purchasing managers’ index surveys that move markets. But in a Trumpian world, when political and geopolitical news flow are rarely far away, macro news often cannot keep up.
Admittedly, it may not be as exciting as presidential tweets, but hard economic data gives an idea of the resilience of economies to withstand the coming tariff storm. Ahead of data influenced by the impact of Liberation Day on activity, how are leading economies faring?
A glance at our US economic momentum gauges (see chart) would make any central banker content with a job well done and signal the green light to cut interest rates further. US activity levels and price momentum started to slow in March, while there were no signs of a harsh landing in consumption or the labour market.
That said, businesses and consumers will find it much tougher to plan in coming months given the US policy uncertainty. This is likely to filter through to pessimistic expectation surveys and to hit consumption and labour market momentum.
But the US trade outlook is not just affected by import tariffs. The US dollar has weakened substantially of late against a US trade-weighted basket of other major currencies. With over 90% of US imports invoiced in the greenback, a weaker currency puts additional strain on businesses buying goods from the rest of the world.
Macroeconomic momentum indicators, both hard and soft, for different aspects of the US economy. Green (red) numbers suggest activity accelerated (decelerated) in the three months to March compared to between October and March
Source: Barclays Private Bank, April 2025
European macroeconomic momentum was anything but exciting in March (see chart), with slowing activity in Germany and France, and a sluggish labour market (especially in Germany). Despite Europe’s largest economy’s passing a gargantuan defence bill in March, which bypasses the country’s debt-break and promises considerable extra government spending, the overall assessment remains mediocre at best.
However, as the US and China stare each other down, decent growth in a somewhat stable environment can look appealing. Indeed, despite an anticipated slowdown in the European Union this year, this will be feathered to some degree by European Central Bank rate cuts, which could fall to 1.25% by year-end.
The latest short-term momentum in economic activity surveys, based on our macroeconomic momentum indicators. Values below zero (red) indicate decelerating momentum, values above zero (green) flag acceleration.
Source: Barclays Private Bank, April 2025
Chinese consumer prices have continued to fall this year. Indeed, many economists refer to the country’s current weakness as ‘Japanification’, being reminiscent of the decades-long slump Japan suffered after 1990, as explained in Is China having its ‘big bazooka’ moment?
That said, data for the first quarter shows accelerating growth and rebounding consumption, following fresh stimulus measures implemented in late 2024. However, China is on the (long) way to healing.
Still, if somebody wanted to throw a spanner in the works of an economy with enormous potential but domestic structural issues (heavy consumer debt burden, a property market in decline, slowing growth and an ageing population): now would be a good moment.
The American economy is in many ways addicted to Chinese exports. As such, it is not surprising that the US administration eventually exempted goods such as smartphones, computers and semiconductors from the Liberation Day tariff rates. However, these electronic goods still attract the additional 20% tariff announced prior to Liberation Day in relation to fentanyl. This partial reprieve and ample dry powder for fiscal stimulus measures should support Chinese growth in the second quarter of 2025.
Our manufacturing and services activity surveys across developed markets were below their median reading of the last 15 years. Despite the worsening sentiment, most equity market valuations, even after Liberation Day, are still at or above their respective medians over the same period.
With President Donald Trump’s tariff storm launched in April, activity surveys should head lower for that month and beyond. Despite the recent market sell-off, large equity indices still don’t appear cheap (see chart).
Estimated price-earnings ratios (at market close on 17 April) and purchasing managers’ indices for manufacturing and services, relative to 25%, 50% (median) and 75% quantiles since January 2010.
Source: Bloomberg, Barclays Private Bank, April 2025
With financial markets highly volatile, discover what might lie ahead for investors this year in May’s edition of Market Perspectives, the monthly investment strategy update from Barclays Private Bank.
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