Global Strategy 2Q 2025: The past quarter was turbulent

The past quarter was turbulent. The markets were confronted with a massive slowdown in the US economy. We expect the US economy to remain weak. However, both the US equity and bond markets have probably already adjusted to this. By contrast, the outlook for Europe has improved. The spending packages at the EU level for defence and the infrastructure package in Germany are already boosting sentiment, but the corresponding spending will probably not be felt until 2026.

Economy

The growth outlook for the eurozone improved significantly in March due to the prospect of substantial fiscal stimulus. We have therefore raised our growth forecast noticeably to 1.5% (previously 1.0%) for 2026. We predict a significant acceleration in growth in the coming year, especially for Germany. In the US, by contrast, we expect markedly lower economic growth this year and next. We base this forecast on the assumptions of falling private consumption, restrained business investment and sustained uncertainties due to US trade policy.

Bonds

After German government bonds followed their US counterparts for long, they decoupled in March. High planned public spending led to a massive increase in the yields of German federal bonds. We think that a somewhat over-optimistic economic policy scenario has been priced in here too quickly and expect yields to fall during the course of the year. By contrast, the US bond market has already largely priced in the imminent marked cooling of the US economy and so we expect little change here.

Currencies

The euro appreciated noticeably against the US dollar, reflecting the increased long-term growth prospects of the eurozone and the narrowing interest rate differential with the US dollar. We think that increased volatility will accompany the interest rate and currency markets in the coming months and expect the euro to move in a volatile sideways range in the medium term, with upside potential for the common currency. Gold is benefiting from the falling opportunity costs due to falling real interest rates, strong investor demand and also from the increased geopolitical uncertainties. We expect a slight increase in the gold price in Q2.

Equities

In view of the positive growth outlook for corporate earnings, we expect the global stock market index to trend upwards in Q2. We predict an increase in the range between 0% and +5%. Our preferred sectors are technology, health, finance, industry, telecom and utilities, although we have a somewhat different view of these sectors in Europe and the US. In the emerging markets, India remains our favorite market.

Download The Full Global Strategy