�۶���Ƶ

Fed independence concerns ease

Concerns over the Federal Reserve's independence resurfaced last week. Markets were initially unsettled by comments from President Trump, who called Fed Chair Powell “Mr. Too Late” and said he could be removed “real fast.” National Economic Council Director Hassett added that Trump would “continue to study” the possibility of dismissing Powell.

However, sentiment improved after Trump clarified on Tuesday that he has “no intention” of firing Powell. The reassurance helped the S&P 500 to rally on Wednesday, partially recovering from earlier losses.

Additionally, comments from Cleveland Fed President Hammack that the Fed could cut rates in June if data warrants, and from Fed Governor Waller indicating support for cuts if tariffs weaken the jobs market, further bolstered market confidence in policy support.

While Trump may continue to publicly criticize Powell, his statement that he has “no intention” of firing the Fed chair helped allay fears about political interference in the Fed's decisionmaking. It also implies a low risk that Powell is removed from office before the official end to his term in May 2026. But any renewed threats to Fed independence could unsettle markets.

With uncertainty still elevated around trade policy, economic growth, and Fed action, we expect volatility to persist. Hammack’s comments sharpened the market’s focus on June as a potential interest rate decision point, but also reinforced the Fed’s emphasis on patience.

Takeaway: Our base case is that the Fed will cut interest rates by 75-100 basis points this year. In the near term, the Fed’s flexibility appears more limited as it balances slower growth risks against concerns over inflation. With yields now elevated, we believe government bonds in select markets (including the US) offer attractive diversification benefits and should perform well if US growth slows, supporting their inclusion in balanced portfolios. We also see scope to diversify and bolster income through investment grade debt, diversified fixed income approaches that potentially include more growth-sensitive instruments like senior loans, and in equity income strategies in markets where sovereign yields are already low.

Thawing trade relations lift market sentiment

Positive signals from the Trump administration revived sentiment last week. Treasury Secretary Bessent reportedly called the current tariff standoff with China “unsustainable” and expressed hope for deescalation. President Trump later stated tariffs on China could “fall significantly,” though not to zero.

Separately, the White House reported “significant progress” in trade talks with India and said it was nearing a deal with Japan. Later in the week, reports suggested the administration was considering cutting tariffs on Chinese imports to between 50–65%, provided China reciprocates. Trump also floated easing auto part tariffs amid lobbying efforts, as well as sector tariffs on steel and aluminum products.

The more conciliatory tone from the White House aligns with our view that the worst-case tariff scenario can be avoided. Our base case remains that the effective US tariff rate ex-China will settle in the 10–15% range, with Canada and Mexico largely exempt. The shift in tone rekindles confidence in the "Trump put"—the notion that market stress prompts government policy moderation.

Nonetheless, volatility is likely to stay elevated as negotiations continue. Recent developments suggest a less aggressive approach, but we judge that twists and turns in talks will continue to drive short-term swings. The administration's sensitivity to market performance, alongside a net negative economic approval rating in some recent surveys, supports our view that further trade deescalation is likely.

Takeaway: While market swings are set to persist, we maintain a positive outlook on US equities, with a year-end S&P 500 target of 5,800. Phasing into equity exposure remains our preferred strategy to manage timing risks, alongside capital preservation strategies to hedge near-term volatility. Opportunistic investors seeking to capitalize on market mispricing after the recent volatitlity can consider diversifying into select European equities (including small- and mid-cap stocks), Indian and Taiwanese markets within Asia, and with structured strategies that seek to turn elevated volatility into a source of portfolio yield.

Gold rally to resume

Concerns around Federal Reserve independence and escalating US-China trade tensions at the start of last week buoyed gold. Bullion prices climbed to fresh all-time highs, trading above USD 3,500 per ounce for the first time last Tuesday as investors sought safety.

However, sentiment later stabilized as markets refocused on the likelihood of both Trump and Fed “puts," supporting expectations for eventual tariff reductions and further US rate cuts. Investor encouragement on potential off-ramps in US-China trade tensions led gold prices to moderate to around USD 3,280/oz at the time of going to print.

Yet, we believe gold can advance further in 2025, underpinned by strong investor demand, renewed geopolitical tensions, and as a potential hedge for investors fearful of persistent inflationary pressures linked to rising global tariffs.

Additionally, purchases of exchange-traded funds (ETFs) have increased recently alongside ongoing central bank demand, potential evidence of diversification away from the US dollar by both the official sector and households.

Takeaway: Allocating 5% to gold in a USD portfolio can diversify and hedge against inflation, in our view. Our base case remains for gold to reach USD 3,500 per ounce by year-end, supported by resilient investment flows, continued central bank diversification, and a volatile geopolitical environment. If US political uncertainty extends further, leading to greater demand for perceived “safe havens,” we believe gold could climb in an adverse macro scenario to USD 3,800/oz.