Data source: Bloomberg

In Q1 2025, Donald Trump’s focus on tariffs and trade disputes drove significant volatility in the financial markets. His threat to impose new tariffs on China and other trade partners raised concerns about global supply chains and inflation, causing even panic among some investors. This trade tension led to sharp market swings. We saw a global divergence: Non-U.S. markets, particularly in Europe and Asia, outperformed U.S. equities as investors rotated out of the American equities. ​ 

 Sources: Schroeders, Bloomberg, Yahoo Finance, JP Morgan, Reuters

In the US

• In Q1 U.S. equities experienced significant volatility driven by policy uncertainties and shifting investor sentiment:​

• Market Decline: The S&P 500 and Nasdaq Composite fell sharply amid escalating trade tensions and a shift from growth to defensive sectors. ​

• Tech Sector Underperformance: “Magnificent Seven” tech stocks, including Nvidia and Tesla, saw sharp declines due to tariff impacts and valuation concerns. ​

• Defensive Sector Strength: Utilities, healthcare, and consumer staples outperformed, with energy stocks rising over 10% for the year. ​

  These developments underscore a challenging quarter for U.S. equities, marked by geopolitical tensions caused by Trump and sector rotations.

In the Rest of the World

During Q1 2025, Asian equity markets experienced significant volatility due to a combination of global and regional factors:​

• China: Both CSI 300 index and Hong Kong’s Hang Seng declined, influenced by disappointing manufacturing data and concerns over tarrif war with the US.

• Japan and South Korea: Japan’s Nikkei index fell, while South Korea’s KOSPI index also faced significant declines due to heightened geopolitical tensions and economic concerns.

• Strong Outperformance: The MSCI Latin America Index outperformed the S&P 500, driven by investor shifts away from U.S. assets amid trade tensions. Stock markets in Brazil and Mexico saw significant increases, buoyed by their exclusion from new U.S. tariffs, enhancing Latin America’s appeal to both foreign and direct investors.

In the US

• In March, the US Federal Reserve (Fed) cut its US growth forecast for 2025 to 1.7% from 2.1%. The Fed also lifted its inflation outlook to 2.7% from 2.5%. The Fed kept interest rates on hold at 4.25-4.50% during the quarter.

In the Rest of the World

• The Bank of Japan raised its policy rate in late January, a widely expected move that supported financial stocks, particularly banks. 
• The chinese government announced stimulus measures, such interest rate cuts, to support the country’s property sector, and liquidity injections to help to stabilise the economy and restore investor confidence.

• The U.S. dollar experienced a significant decline, with the Dollar Index (DXY) dropping nearly 10% from its January peak to a 3-year low against major currencies. This depreciation was largely driven by President Trump’s aggressive tariff policies, which sparked inflation and recession fears, leading investors to shift away from U.S. assets. Consequently, currencies such as the Swiss franc, Japanese yen, and the euro gained against the dollar.

Digital asset markets were caught by opposing forces during the first quarter. On the one hand, the Trump administration pushed ahead with plans to make the US the crypto capital of the world, while simultaneously uncertainty over tariff policies weighed heavily on all risk assets:

• Bitcoin proved relatively resilient in Q1, declining only 12% despite broad market pressures, and remained flat in March.
• Ethereum faced a sharp downturn, falling over 45% during the quarter, making it one of the hardest-hit major digital assets.

• The S&P GSCI Index gained in the first quarter.

• Precious metals was the best-performing component, with strong price gains achieved by gold and silver. Worries over tariffs and their potential impact on economic growth saw investors turn to assets perceived as safe havens, such as gold.

• Agriculture was the worst-performing component of the index, driven lower by a sharp fall in the price of cocoa. Declines in the price of wheat, cotton and corn were more modest, while coffee and sugar prices gained in the quarter.

• Within energy, all sub-components gained in the quarter, with natural gas achieving the biggest price rise.

• In industrial metals, the price of copper was sharply higher, while lead and nickel achieved more modest gains. Zinc prices fell in the quarter.

2. Global Market Turbulence Amid U.S. Tariffs and Fed Tensions

In Q1 2025, U.S. financial markets experienced significant declines, with the S&P 500 dropping 13%, marking its worst start relative to global peers since 1993. This downturn was attributed to President Trump’s tariff policies and public disputes with the Federal Reserve. Investor confidence was shaken, leading to increased demand for safe-haven assets like gold, which reached a record $3,500 per ounce.

4. Bitcoin’s Volatile Q1: Worst Quarterly Performance in a Decade

In 1Q2025 Bitcoin recorded its worst Q1 performance in a decade with an 11.7% decline. Prices dropped from over $93,000 in January to around $82,500 by the end of March. This downturn was influenced by macroeconomic uncertainties, including U.S. trade policies and regulatory concerns. Nevertheless, institutional interest remained strong, with public companies increasing their Bitcoin holdings by 16.1% during the quarter. Notably, Tesla reported holding $951 million in Bitcoin at the end of Q1, down from $1.076 billion in December, without any sales during the period.

Konstantin Veit, PM, Pimco

” The U.S.’s historical advantage as the issuer of the global reserve currency and provider of reserve assets may no longer be secure.” They advocate for reducing exposure to U.S. assets and suggest considering long-dated government bonds in Europe, the UK, Japan, and select emerging markets.

Jamie Dimon, CEO, JP Morgan

“Asset prices are kind of inflated, by any measure. They are in the top 10% or 15% of historical valuations.”

28 April: Canada’s Federal Election

Justin Trudeau resigned amid growing political pressure, and Carney is now seeking a clear mandate from voters to lead the country.

What we can expect: 

Canada is set to hold a federal election on April 28, 2025. Prime Minister Mark Carney called the snap vote (an election called earlier than expected) to secure a stronger mandate, with the race expected to be close between his Liberal Party and Pierre Poilievre’s Conservatives. Key issues include economic policy and tensions with the U.S.

6 May: Germany’s New Chancellor Elected

Following the February 2025 federal election, the Bundestag, the German parliament, is scheduled to vote on May 6 to officially elect Merz as the new chancellor.

What we can expect: 

The German elections took place in February with Friedrich Merz’s Christian Democrats (CDU) emerging as the largest party. Merz signalled an intention to form a government by Easter. However, he was able to push through plans to loosen Germany’s strict borrowing limits before the new parliamentary session began. Extra money is expected to be spent on defence and infrastructure.

7 May and 18 June : US Federal Reserve Interest Rate Decision

The Federal Open Market Committee (FOMC) convened on May 7, 2025, to determine the federal funds rate.

What we can expect: 

As of April 23, 2025, market expectations indicate that the Federal Reserve is likely to maintain the current federal funds rate at 4.25%–4.50% during its upcoming meeting on May 7. 

24-26 June: NATO Summit

NATO (North Atlantic Treaty Organization) is a military alliance formed in 1949 to promote collective defense and security among its member countries, primarily in Europe and North America.

What we can expect: 

This year focus will be on strengthening collective defense. It will also address emerging security threats like cyber warfare and technological advancements, and enhance rapid deployment capabilities. Additionally, the summit will emphasize NATO’s response to global security challenges, including the ongoing situation in Ukraine.