Global Macro Flashpoints: Tariff Escalation Meets Central-Bank Dovishness (June 4 2025)
Global Macro Flashpoints: Tariff Escalation Meets Central-Bank Dovishness (June 4 2025)
1 | Trade Tensions Reignite
Markets opened the week with another volley in the trade saga: former U.S. President Donald Trump confirmed he will double tariffs on steel and aluminum via executive order, while Washington formally pressed every major partner to table “best-and-final” offers within five weeks. Bank of England Governor Andrew Bailey warned that Trump’s tariff regime has “blown up” the post-war rules-based order, amplifying macro uncertainty and fragmenting global growth prospects.
2 | Central Banks Pivot to Risk Management
Policy makers are racing to cushion the fallout. The European Central Bank is widely expected to deliver its eighth 25 bp cut on 5 June, taking the deposit rate to 2.00 %. Consensus now sees a “cut-and-pause” path that could halt the easing cycle by September if disinflation stalls.
Across the Atlantic, Fed officials stress “optionality”: Atlanta Fed President Raphael Bostic noted that a still-solid U.S. economy lets the FOMC delay decisions until tariff effects filter through, while Governor Lisa Cook reiterated readiness to pivot quickly if demand softens.
3 | Labor & Manufacturing Signals Diverge
Fresh data underline that the U.S. labor market is losing steam but not cracking. ADP reported only a 62 k rise in April private payrolls, well below the 2024 average yet strong enough to steady sentiment after March’s down-shift.
Conversely, the ISM manufacturing PMI slid to 48.5 % in May, its third straight sub-50 reading, signalling contraction in new orders and employment even as prices paid push higher—a stagflationary mix that complicates policy.
4 | Risk Assets Shrug—Powered by the AI Juggernaut
Equities continue to climb a “wall of worry.” On 3 June, the Dow gained 0.5 %, the S&P 500 0.6 %, and the Nasdaq 0.8 %, the latter erasing its year-to-date loss.
Driving the surge is Nvidia, whose market cap overtook Microsoft at $3.45 trn after a 2.9 % rally. Investors extrapolate explosive growth from the new Blackwell AI platform, with sell-side forecasts of 70–80 % gross margins and a $1 trn TAM for AI infrastructure.
5 | Commodities Corner: Oil Bulls Regain the Narrative
Brent crude spiked nearly 3 % to $91/bbl after OPEC+ kept its July quota hike modest and wildfires curtailed Canadian supply. Geopolitical premium is back on radar as Ukraine drone strikes hit Russian storage and Iran-Israel tensions simmer. Inflation-sensitive assets—gold, tips, break-evens—firmed on the bid, reinforcing concerns that central banks may face a second-round price shock.
6 | China’s Targeted Stimulus Keeps the Floor Under EM
Beijing’s latest stimulus—over ¥11.2 trn in special sovereign bonds (≈10 % of GDP)—funnels cash-for-clunkers rebates and green-tech subsidies, cushioning domestic demand just as export growth stalls under tariff headwinds. The yuan has steadied near 7.28 per dollar, helping Asia-ex-Japan equities score their first four-day winning streak since March.
7 | FX & Rates: Dollar Bid, Euro in Flux
The DXY index hit 107.4, propelled by widening U.S.–German yield spreads and safe-haven flows. Yet euro volatility is elevated: another ECB cut could steepen the bund curve and revive carry trades into the periphery. In the U.S., the 2-yr Treasury yield is pinned near 4.38 %, but the 10-yr has drifted toward 4.55 % on supply concerns and sticky services inflation, flattening the curve to –17 bp.
8 | Outlook: Navigating a Low-Visibility Summer
With tariff brinkmanship, divergent growth signals, and policy bifurcation, asset allocators face asymmetric risks. Our base-case: modest global growth (2.9 % OECD), a soft U-S landing, but elevated tail-risk of a trade-induced demand shock. Portfolios tilted toward quality-growth tech and resource cyclicals may outperform, yet hedges via long volatility, selective EM local-currency debt (China, India), and inflation-linked bonds look prudent for a choppy Q3.
