The escalating trade conflicts, particularly between the US and China, are among the main causes of the current uncertainty in the financial markets. The S&P 500 and US high-yield bonds have experienced their steepest weekly loss since the pandemic shock of 2020. Despite positive US labor market data, caution remains high as international countermeasures and tariffs, such as China’s set 34 percent, weigh on the markets. Forecasts are challenging, as political negotiations will take time, which could lead to an expected slowdown in growth and inflation.
Monetary policymakers face complex challenges. Technological innovations, climate change, and demographic shifts require new approaches to ensure price stability and foster sustainable growth. These aspects are currently dominating international professional conferences as well.
The economic outlook indicates a slowdown in both the Eurozone and the US. The European Central Bank has reduced its growth forecast to 0.9 percent, while the US recorded negative growth of minus 0.3 percent in the first quarter, due to increased imports caused by new tariffs. Lower economic dynamism is also expected for the second quarter.
Regarding investment strategies, major asset managers like BlackRock have reduced their risk exposure in equities and are currently favoring short-term US government bonds. However, a quick resolution of the political conditions could increase risk appetite again.
Overall, the financial markets are currently characterized by geopolitical tensions, monetary policy challenges, and signs of economic cooling.