23 May 2025
Global Market Outlook
Global Market Outlook
Riding the tariff relief rally
We raise global equities to Overweight. US trade policy risks have eased, and market technical indicators have improved. More trade deals and relative resilience in economic activity data and corporate earnings estimates are key to sustaining the rally.
Upgrade US equities to a small Overweight. The ‘Sell America’ trade is overdone. However, we will continue to diversify across major regions. We are Overweight China within Asia ex-Japan, given policy stimulus and a softer USD.
Downgrade gold to a core holding, as we expect a period of consolidation ahead. High-quality bonds remain attractive at today’s elevated yields.
What next after the relief rally?
What are the key macro scenarios to consider?
Are quantitative models still bullish on equities?
Strategy
Investment strategy and key themes
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12m Foundation Overweights:
- Equities
- US equities
Opportunistic ideas – Equities
- US software, communications, major banks, semiconductors
- China non-financial high dividend SOEs and Hang Seng Technology Index
- European banks, industrials
Opportunistic ideas – Bonds
- US Agency mortgage-backed securities (MBS)
- UK Gilts (FX unhedged)
- US 20-year-plus government bonds
- US Treasury Inflation-Protected Securities (TIPS)
Riding the tariff relief rally
- We raise global equities to Overweight. US trade policy risks have eased, and market technical indicators have improved. More trade deals and relative resilience in economic activity data and corporate earnings are key to sustaining the rally.
- Upgrade US equities to a small Overweight. The ‘Sell America’ trade is overdone. However, we will continue to diversify across major regions. We are Overweight China within Asia ex-Japan, given policy stimulus and a softer USD.
- Downgrade gold to a core holding, as we expect a period of consolidation ahead. High-quality bonds remain attractive at today’s elevated yields.
Blowing hot and cold
US trade policy has undergone three major changes over the past two months. ‘Liberation Day’ (2 April) brought higher-than-expected tariffs. Subsequently, on 9 April, Trump paused most tariffs for 90 days to focus on trade talks. More recently, the US announced the outline of a ‘deal’ with the UK and start of US-China trade talks. Markets have followed this flip-flop, with the S&P500 falling about 20% peak-to-trough at one point, before recovering most of the losses and turning positive year-to-date.
The most important question today is whether the equity rebound has legs in the long term or whether we see a renewed relapse in the near term. To help answer this, we focus on two key upcoming event risks.
First is trade policy. We expect more trade deal conclusions sustaining the rally – especially with the 90-day tariff pause ending in early July. Second is economic data. We expect relative resilience in hard data (i.e., real economic activity) to sustain market gains, despite the recent weakness in soft sentiment data from surveys. Progress on Trump’s deregulation agenda should also offer support.
As a base case, we still expect the US economy to achieve a benign soft landing, with growth slowing below trend. However, a hard landing remains a risk. The latest US sovereign rating downgrade highlights ongoing concerns about US fiscal deficits, though we would view a significant impact on bond markets as more of a tail risk.
Fig. 1 Near-term equity market outlook positive, despite uncertainty after the 90-day tariff pause expiry
Our short-term S&P500 technical model
Overweight equities, for now
Given the risks, it is fair to question why we are upgrading equities back to an Overweight.
A sharp improvement in the near-term outlook drives our more constructive view on global equities. Our short-term (one- to three-month) technical models have turned bullish for US and China equities. This means a test, or a break above, the S&P500’s prior record high can be expected. Our longer-term stock-bond model has also turned modestly bullish on global equities, but this is also driven by technical (rather than fundamental) drivers. The reasonably long period between now and early July (when the US 90-day tariff pause ends) creates room for equity momentum to run further, especially if a few more trade deals are signed and Trump is able to implement his deregulation and tax agendas.
Regionally, we have a slight preference for US equities. The Q1 earnings season was strong, and the ‘Sell America’ trade was arguably excessive, given resilient earnings.
Having said that, we continue to emphasise the importance of ensuring adequate diversification across regions. We view Euro area and Asia ex-Japan equities as core holdings, with pullbacks as opportunities to rebalance. Within Asia ex-Japan, we are Overweight Chinese equities, given the additional support from domestic stimulus. We retain Indian equities as a core holding, given a possible US-India trade deal, strong earnings growth and foreign investor inflows. Both markets should benefit from a weaker USD.
Gold to consolidate near term
We reduce gold to a core holding and expect prices to approach USD 3,100/oz over the next one to three months. After the surge in prices this year, we see a period of consolidation before the next leg higher. This is a pattern witnessed several times since 2022 and illustrates major buyers display a degree of price sensitivity in the current environment. Over a longer-term, 6-12-month horizon, we expect gold to make a renewed move towards USD 3,500/oz as major central bank buying resumes.
Fig. 2 US bond yields are attractive as they approach top of their recent range
US 10-year government bond yield and our expected range
Add to high-quality bonds
US government bond yields have rebounded following the rebound in risk appetite and Moody’s credit rating downgrade.
We view bonds as a core holding and believe it is attractive to buy high-quality bonds at current yields. Short of an unexpected inflation shock, the US 10-year government bond yield is expected to fall (i) to the 4.00-4.25% range in our base soft-landing scenario and (ii) below 4% in a hard-landing scenario. A jump in yields on the back of US fiscal deficit concerns is a key risk, highlighted by the US credit rating downgrade. However, studies of sovereign credit stress over the last few centuries argue debt imbalances can persist for long periods. This argues the case for viewing this as more of a tail risk in the absence of a trigger.
We now see attractive value in longer maturity bonds, which offer exposure to an expected move lower in yields.
US dollar – higher then lower
We expect the US Dollar index (DXY) to rebound over the next 1-3 months and then weaken over 6-12 months.
In the near term, renewed appetite for US assets and closing of earlier bearish positions should offer support for the USD. This should reduce demand for safe haven currencies, typically with low borrowing costs. However, we expect this USD bounce to be temporary. Ongoing rotation out of US assets and elevated USD valuations are likely to lead to a modestly weaker USD in the longer term.
Opportunistic ideas
Within equities, we opportunistically turn bullish on US-listed semiconductor sector equities, which we expect to benefit from the ongoing rally in US cyclical sectors. Within bonds, we also opportunistically turn bullish on (i) 20-year-plus US government bonds and (ii) UK government bonds (FX-unhedged).
Foundation asset allocation models
The Foundation and Foundation+ models are allocations that you can use as the starting point for building a diversified investment portfolio. The Foundation model showcases a set of allocations focusing on traditional asset classes that are accessible to most investors, while the Foundation+ model includes allocations to private assets that may be accessible to investors in some jurisdictions, but not others.
Fig. 3 Foundation asset allocation for a balanced risk profile
Fig. 4 Foundation+ asset allocation for a balanced risk profile
Fig. 5 Multi-asset income allocation for a moderate risk profile
Source: Standard Chartered
Foundation: Our tactical asset allocation views
Fig. 6 Performance of our Foundation Allocations*
Source: Bloomberg, Standard Chartered; *12-month performance data from 22 May 2024 to 22 May 2025, 3-month performance from 22 Feb 2025 to 22 May 2025, 1-month performance from 22 Apr 2025 to 22 May 2025.
Perspectives on key client questions
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What’s next after the relief rally?
- The US-China trade truce supports a constructive stance on risk
- However, uncertainties remain – we outline three key scenarios
- Diversification remains crucial to navigate the uncertainties ahead
Market dynamics have shifted notably in recent weeks. Trade tensions that once weighed on sentiment have eased considerably, paving the way for a sharp rebound in US equities. The US administration has demonstrated pragmatism, with an apparent desire to avoid economic self-harm. Combined with resilient macro data and solid corporate earnings, these developments have narrowed the range of potential outcomes for risk assets, reducing the likelihood of a sharp drawdown in equities.
The US-China truce on trade has reduced the risks of a US economic hard-landing and supports a more constructive stance on risk. However, the road ahead will be bumpy, requiring careful navigation by investors. A divergence between ‘hard’ and ‘soft’ economic data has emerged – hard economic data remains resilient, while soft survey data signals fragility, raising the risk that hard data may eventually weaken. Risk assets have also priced in much of the recent optimism, and with US equity valuations again elevated, further gains will hinge on meaningful progress on trade negotiations and Trump’s proposed ‘Big Beautiful (tax cut) Bill’, which we expect to dominate the market narrative in the coming months.
Mapping the path ahead
To help investors navigate the uncertainties ahead, we outline three potential scenarios shaped by developments in trade and fiscal policy. Our core scenario is that the US will ultimately be able to achieve a soft-landing, but not without navigating significant volatility and challenges along the way. Trade talks are still in their early stages, while the budget bill raises the risk of delays and policy uncertainty.
Fig. 7 Our core scenario involves an economic soft landing, but there are significant risks around this scenario
Fig. 8 US ‘hard’ data has been resilient, but weakening ‘soft’ data signals underlying fragility
US ‘soft’ vs ‘hard’ data
Soft landing: our core scenario
In this scenario, Trump struggles politically, with policy gridlock stalling progress on his agenda, contributing to prolonged uncertainty. However, trade negotiations do yield results, while a scaled-down version of the tax bill eventually passes Congress. Crucially, US growth slows but escapes a recession as the Fed cuts rates from H2. Market volatility is likely to persist in the near-term, particularly as key deadlines for Trump’s 90-day pause on reciprocal tariffs and the proposed tax bill converge in July. But investors who remain patient would be rewarded as resilient earnings underpin gains in the S&P 500. Our 12-month target for the S&P 500 is at 6,520, 12% higher from current levels.
Hard landing: short-dated bonds and gold preferred
This scenario is the least conducive for US growth and risk assets. The S&P 500 revisits year-to-date lows, before falling further to around 4,500 as hard economic data deteriorates. The US 10-year bond yield falls below 4%, but
downside is limited by rising inflation and term premia, even as the Fed cuts rates. Only short-dated government bonds, safe-haven currencies and gold offer refuge.
No landing: US equities and riskier bonds to outperform
US equities and riskier bonds outperform, putting to rest the ‘Sell America’ narrative. The S&P 500 rises to 7,000 over a 12-month period, gaining 20% from current levels. Foreign demand returns for US government bonds, but better risk sentiment, limited pressure for the Fed to act, and lingering deficit concerns keep 10-year yields within the 4.5-5.0% range.
Fig. 9 Our strategies have performed well amid recent market volatility
Max drawdown in April of various strategies
Diversification remains crucial to navigate uncertainties
The complex outlook calls for tempered optimism. In this nuanced backdrop, diversification remains crucial. While the S&P500 has eked out gains for the year, other regions and sectors, such as European equities and the Chinese technology sector, have outperformed. Our strategies have also delivered lower drawdowns compared to traditional 60/40 portfolios and global equities. This underscores the value of active diversification – not just across asset classes but across geographies and strategies as well.
Fig. 10 Our core soft landing scenario implies equities outperforming bonds; USD weakness could benefit EM assets
Macro overview – at a glance
Our macroeconomic outlook and key questions
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Key themes
Core scenario (soft landing, 50% probability): The US-China trade truce has reduced the chance of a US economic hard landing. Although still-elevated tariffs will slow growth and lift inflation, the focus will move to trade deals, tax cuts and deregulation. We expect the resulting improvement in consumer and business sentiment to help the US avert a recession. As the job market cools, we expect the Fed to cut rates by 75bps over the next 12 months, starting from H2. Meanwhile, fiscal and monetary policy easing in China and Europe (especially Germany) should broaden growth beyond the US.
Downside risk (hard landing, 25% probability): Depressed US consumer and business sentiment, worsened by renewed trade tensions, could hurt real activity data. Even if the Fed hastens rate cuts, the US could experience a mild recession, dragging global growth. A surge in US bond yields due to unfunded tax cuts and a USD sell-off is another risk to the soft-landing view.
Upside risk (no-landing, 25% probability): Cuts to US government spending and taxes and deregulation could revive private sector ‘animal spirits’. Meanwhile, the US could use tariff pressure to finalise trade deals and seal a ‘grand bargain’ with China, boosting domestic consumption in China and investment in Europe. This could lead to a more balanced global economy.
Key chart
The US-China temporary tariff truce has eased global trade uncertainty. However, investors’ focus will turn to incoming ‘hard’ data to see if US policies have further damaged the already softening labour market.
Fig. 11 As global trade uncertainty eases, the focus shifts to US ‘hard’ data
US and China trade policy uncertainty indices*; US unemployment and job opening rates
Macro factors to watch
US trade deals, tax cuts and deregulation: The US-China truce and the preliminary US-UK trade deal set the tone for US talks with key partners. The UK deal suggests a 10% baseline tariff will apply to all US imports, which partly pays for proposed tax cuts. China will face a higher tariff than the baseline but not as high as 50-60% initially feared. Strategic sectors, such as steel, aluminium, autos and semiconductors, will face restrictive (higher-than-baseline) tariffs.
Even after the US-China temporary tariff rollbacks and likely consumption shifts, the US average tariff rate will be 16.4%, the highest since 1937, according to the Yale Budget Lab. This is estimated to cut US growth by 0.7% and lift inflation by 1.7% in the short term. Hence, there is an urgency for the administration to enact tax cuts and deregulation in the coming months. We expect a modest net fiscal stimulus from the tax cuts due to pressure from the bond markets. A weaker job market will allow the Fed to start cutting rates in H2.
German fiscal boost, trade thaw to limit ECB rate cuts: Europe’s economic revival significantly rests on how soon the new German government implements its 12-year, EUR 500bn infrastructure spending plan (equivalent to 1% of GDP per year) and off-budget defence spending that were recently approved by the parliament. Euro area PMI data showed service sector (70% of the economy) slowed in May. However, Germany’s fiscal spending plan and a US trade deal would reduce the chances of ECB rate cuts. We expect one more 25bps ECB deposit rate cut in June, followed by a long pause.
US-China trade talks, stimulus: The US-China temporary trade truce has arguably removed the worst-case scenario of an all-out trade war. It also underlined the so-called ‘Trump put’ remains in place – that US trade policy is likely to be restrained by markets. However, China continues to face deflationary pressures, and still-elevated US tariffs are likely to continue to weigh on growth and prices. Hence, we expect Beijing to keep easing monetary and fiscal policies, including further bank deposit rate cuts, to help achieve its c.5% growth target for this year.
Asset Classes
Bonds – at a glance
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Key themes
Foundation: We downgrade DM government bonds to a core holding but still believe current yield levels offer an attractive entry point. Worries about inflation and the US fiscal deficit have pushed yields higher, but we expect yields to eventually fall in both soft and hard landing scenarios. An unexpected surge in inflation expectations due to tariffs is the key risk.
New opportunistic view: Turn bullish US 20-year-plus US government bonds. We believe the recent rise in 20-year+ US bond yields to the upper end of their recent trading range makes them attractive. A surge in inflation expectations is a risk.
New opportunistic view: Turn bullish UK government bonds [Gilts] (FX-unhedged). We like the nominal yield pick-up over other Developed Market (DM) government bonds and believe the Bank of England is in a better position to cut rates relative to peers. Risks include stronger-than-expected inflation, wage growth and significant GBP weakness.
Outstanding opportunistic views: Bullish US Agency MBS; bullish US Treasury Inflation-Protected Securities.
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Bond returns should be supported by further DM central bank rate cuts in H2 25. However, corporate bond yield premia have tightened again to their one-year average lows.
Fig. 12 Major DM central banks remain dovish; Global bond yield premia have partly reversed the March-April widening episode
We continue to view global bonds as a core holding. In our base soft landing scenario, we expect bond returns to be supported by falling yields from current levels, helping them outperform cash which does not offer protection against lower central bank interest rates. High quality bonds should also offer diversification benefits (in a low or falling inflation outcome) particularly in a hard landing risk scenario.
Current nominal bond yields are near the upper end of their recent range, making the risk/reward profile attractive, especially for high-quality bonds. Looking ahead, we anticipate investor focus will gradually shift from concerns over fiscal imbalances to the broader economic growth outcome. High-quality bonds can serve as a hedge against the prevailing uncertainty. Risks to our view include reduced rate cut expectations and a surge in the US deficit.
That said, while nominal corporate/EM bond yields are also higher, credit spreads (premium over government bond yields) appear to be tight again after falling to their one-year average.
We downgrade DM Investment Grade (IG) government bonds to a core holding
(Neutral) amid fiscal and inflation uncertainty. We still believe major DM central banks have room to cut policy rates where growth data is slowing, which should offer support to the sub-asset class and help yields move lower once current US tax and spending worries abate.
We now view both Emerging Market (EM) USD government bonds and EM local currency government bonds as core holdings. Both should benefit from a softer USD over the next 6-12 months, given that a weaker USD has historically been a positive for fund flows into EM assets.
DM IG and High Yield corporate bonds remain core holdings. While yield premia have tightened from their recent peak, technical drivers remain supportive as we anticipate solid fund inflows, especially to capture today’s yield levels.
We also view Asia USD bonds as a core holding. Although most Asian economies face a risk from US tariffs, stronger external balances, flexible monetary policy tools and robust domestic support are expected to cap any move higher in yields.
Equity – at a glance
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Key themes
We upgrade Global and US equities to Overweight as trade tensions de-escalate and there is further room for investor positioning to normalise.
We plan to increase exposure to US equities on near-term pullback, especially on growth-focused US equities, while rotating out of defensively tilted UK equities.
We expect China equities to outperform Asia ex-Japan, with attractive valuation and growth prospects from DeepSeek.
Key chart
US equities once again in demand as trade tensions de-escalate
Fig. 13 Earnings expectations for global equities continue to rise, despite the recent pullback; US investor positioning is off extreme lows, but still implies further upside
Performance and 12m forward EPS of MSCI AC World index since 2015; S&P500 investor positioning and 3m forward returns based on performance since 2010
Tailwind from the ‘clarity factor’
We upgrade global equities to Overweight versus other asset classes. Fading tariff concerns and still-robust economic data are bolstering investor sentiment.
Within global equities, we upgrade US equities to Overweight. Q1 25 earnings beat expectations, with relatively resilient forward earnings guidance. The US-China temporary tariff rollback has reduced uncertainty on the earnings outlook and we expect further de-escalation in trade talks to support earnings projections. Elevated ROE justifies elevated US valuations (12m forward P/E at 19.5% premium to global stocks). Investor positioning in US equities has risen from extreme lows but there is still has scope for further upside.
We downgrade UK equities to Underweight. UK equities are heavy on defensive sectors, which go against our ‘pro-risk’ stance. We see positives from the UK’s trade deal with the US to be largely priced in following its strong rally since the ‘Liberation Day’.
We view Asia ex-Japan as a core holding. A weaker USD and de-escalation of tension between the US and China are
positives, but earnings revisions are poor. Within Asia ex-Japan, we are Overweight China equities. Domestic policies are supportive, such as easing monetary policy and fiscal support on technological innovations. Such policies should lend more tailwind to China onshore equities. However, China offshore equities have more attractive technology sector exposure. Hence, we move to a Neutral preference between onshore versus offshore China equities. India equities remain a core holding within Asia ex-Japan. India is relatively insulated from tariff concerns, but its 2025 earnings expectations are declining, and valuations are elevated.
Europe ex-UK equities remain a core holding. They benefit from rising fiscal and defence spending as well as further easing from the ECB. However, earnings growth projections for 2025 have moderated significantly since start of year and are likely to decline further should geopolitical tensions intensify.
Japan equities remain a core holding. The catalyst of improving corporate governance, e.g. share buybacks, remains; Nippon Individual Savings Account (NISA) programme continues to drive fund inflows. The stronger JPY and potential uncertainties from Japan’s general election in July act as headwinds.
Equity opportunistic views
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Turning bullish on semiconductors
- US-listed semiconductors are our newest opportunistic idea. The thaw between the US and China brings ‘clarity’ to risk assets, reducing uncertainty for investors. Investors once again are able to refocus on the artificial intelligence (AI) trend, particularly the demand for semiconductors from higher-end AI.
- Within the US, we continue to prefer sectors with strong pricing power (technology software, communication services) or are likely beneficiaries of an economic soft-landing and deregulation (financials).
- Outside the US, we continue to prefer sectors with domestic exposure (Europe banks and China non-financial high-dividend SOEs) or those having an offsetting stimulus (Europe industrials and Hang Seng technology).
Opportunistic buy ideas
US-listed semiconductors (new): Guidance from the Q1 earnings season points to continued growth in AI spending. Markets have ‘graduated’ from concerns about lower computational demand from ‘low-cost’ AI models such as DeepSeek, to how such models help expand the size of the ‘AI pie’. Lower-than-expected AI spending is a risk.
US technology software: The software industry has been relatively resilient against tariffs, helped by its strong pricing power. A decline in the cost of AI tools supports software products and development. Weakness in corporate IT spending is a risk.
US communication services: Attractive growth continues with online entertainment and AI applications. Digital advertising may slow along with the tariffs, but this has been priced in. Advertising softness is a risk.
US major banks: They benefit from a soft landing in the US economy and deregulation, with potentially greater share buybacks. A sharp slowdown in the US economy is a risk.
Europe banks: They derive two-thirds of revenue from Europe and will benefit from Germany’s fiscal stimulus. Attractive dividends and share buybacks are supportive factors. A sharp slowdown in Europe’s economy is a risk.
Europe industrials: Europe’s plans to boost infrastructure and defence spending would support aerospace and
defence, electrical equipment and machinery companies. A downturn in Europe’s economy is a risk.
China non-financial high-dividend SOEs: Their predominantly domestic exposure means they will benefit from the government’s stimulus. Non-financial SOEs are less exposed to the troubled property sector. Adverse regulatory changes are a risk.
Hang Seng technology: Policymakers’ support for AI and technology development underpin the growth outlook. They are cheap versus their counterparts in the US. Weaker-than-expected stimulus is a risk.
Sector views: technology growth continues
We expand our US barbell strategy, upgrading the defensive utilities sector to Overweight, alongside the defensive healthcare sector and growth-oriented communication and technology sectors. In Europe, we downgrade energy to Underweight amid weak oil prices. In China, we maintain exposure to improving consumption and AI adoption with our preference for technology, communication and discretionary.
Fig. 14 Our sector views by region
FX – at a glance
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Key themes
We expect the USD to rebound in the near term before retreating over the next 12 months. Tariff de-escalation can take the USD Index (DXY) to 103 over the next 1-3 months, but concerns about US assets are likely to weigh in the longer term.
EUR/USD faces downside risk in the near-term but we would accumulate on dips. We expect the EUR/USD to ease back to 1.08 over the next three months, mirroring the near-term USD rebound. However, the improving growth outlook in Germany and narrowing rate differentials can take EUR/USD to 1.14 in 12 months.
Asian currencies likely rangebound. Our expectations for USD/SGD are perhaps most representative of our view on Asian currencies – we expect the pair to ease to 1.32 over the next three months before edging higher to 1.34 in 12 months as Asian central bank policy easing helps lean against recent appreciation pressure on their currencies.
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Recent USD weakness has mainly been against G7 currencies. The USD nominal effective exchange rate (NEER) is still above its long-term average.
Fig. 15 GBP and USD valuations remain above their five-year average; FX forecast table
Clouds over the USD over the longer-term
The USD index (DXY) has fallen 8% year to date, weighed by trade uncertainty, widening fiscal deficits and waning investor confidence in US policies. US tariffs and the recent US credit rating downgrade have prompted investors to retreat from US assets. Ongoing trade negotiations and peaking tariff stress support a near-term rebound, but the US’ rising government debt continues to weigh on the USD.
In Europe, markets have priced in an ECB rate cut in June. ECB Governing Council members view current interest rates as sufficiently low and see less need for significantly more easing. We expect the EUR/USD to rebound in H2 25 and trade at 1.14 in 12 months, riding on a growth recovery in Germany and narrowing rate differentials.
We see GBP/USD trading around 1.31 in the near term and rise towards 1.34 over 6-12 months. Meanwhile, easing global trade tensions and fading risk aversion should support near-term upside in USD/JPY and USD/CHF. In particular, the trade-weighted CHF reached a record high in April, prompting market speculation about potential SNB intervention to weaken the currency. We see the possibility of negative Swiss interest rates by September.
Commodity currencies are expected to consolidate in the near term, with a modestly bullish bias over the 12-month horizon. Despite a dovish RBA, we see AUD/USD trading around 0.65 given improving risk appetite and CNY resilience. We see NZD/USD stabilising around 0.59. New Zealand’s monthly inflation is gaining momentum, which will limit RBNZ’s room to cut rates further. Canada has largely avoided additional reciprocal tariffs. With improving factory hiring towards year-end, we expect USD/CAD to trade around 1.37 over a 12-month horizon.
Asian currencies are diverging in performance. We have revised our USD/CNH forecasts lower amid easing trade tensions and expectations of a weaker USD over a 12-month horizon. However, China is expected to gradually guide the CNH weaker to support export competitiveness. The SGD NEER is trading near the stronger end of its band (1.6% above the midpoint). Slowing inflation and rising growth concerns are adding downside pressure on the SGD, with the trade ministry cutting its 2025 GDP growth forecast and the MAS recently lowering its core inflation target. As a result, we expect the SGD NEER to ease toward the midpoint of the policy band, pushing USD/SGD higher toward the 1.32-1.34 range.
Gold, crude oil – at a glance
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Key themes
We downgrade Gold to a core holding and expect a period of consolidation ahead. We trim our 3-month price expectation to USD 3,100 and leave our 12-month expectation unchanged at USD 3,500.
Our 12-month oil price forecast remains unchanged at USD 60/bbl amid still-significant supply. However, over a shorter1-3-month horizon, we expect prices to rebound towards USD 64/bbl.
Key chart
Fig. 16 Gold’s performance during Asian hours has cooled since the trade truce between the US and China
Average cumulative daily returns of gold during Asian hours
Fig. 18 Global central bank net gold purchases in Q1 25 remained strong relative to long-term history
Global central bank quarterly net gold purchases (tonnes)
Fig. 17 Month-to-date flows into China gold ETFs turned negative in May
China gold ETF inflows
Fig. 19 The oil market is likely to remain in surplus this year, keeping prices in check
Oil supply-demand balance, price estimates
We have been Overweight on gold since September last year, and this has served us well, with gold prices rising over 20% during this period. However, with tariff concerns easing, we see an opportunity to tactically take profit. Structural tailwinds – particularly robust central bank demand – remain intact, but signs of buyer fatigue among Asian investors, a key source of recent demand, suggest further near-term downside. That said, we view the consolidation in prices as healthy following the extended rally. With lingering trade uncertainty and rising US deficit concerns as Trump shifts his focus toward tax cuts, gold is expected to be well supported by new baseline floor price of around USD 3,000-3,100/oz.
From a fundamental standpoint, oil markets continue to be oversupplied relative to expected demand. We expect this supply surplus to persist through 2025, exacerbated by a continued OPEC+ rollback of prior output cuts. Therefore, we leave our 6-12-month WTI oil price expectation unchanged at USD 60/bbl. Yet, over a shorter 1-3-month horizon, we raise our price expectation slightly to USD 64/bbl. This is driven by a combination of expected dialling back of excessively bearish investor positioning and short-term positive sentiment from China policy stimulus. Middle East geopolitical risk remains the key upside risk to oil prices.
Additional perspectives
Quant perspective
Slightly bullish equities short-term and long-term
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Summary
Our stock-bond model maintained a small Overweight in global equities due to valuation and technical factors. The model’s Overweight in equities over the past two months has helped to generate an outperformance (or alpha) of 1.1%, against the 60/40 equity-bond benchmark. While year-to-date alpha remains negative at -1.3% due to a weak global equity market between late March and early April, the model’s long-term outperformance since Feb-2023 remains strong and intact, with 3.8% alpha. Our model continues to favour equities, despite weak fundamentals (slower growth and earnings). Valuations of Developed Market (DM) and Asian equities remain attractive, and a strong market breadth should continue to support the recovery in global equities.
Our technical framework is bullish China, US and UK equities in the short term. Our models prefer markets with relatively lower volatility scores i.e., China, the US and the UK. Our models first turned bullish on China equities in late April, followed by the US and the UK in early May. These markets have gained 5.4%, 2.2% and 3.5%, respectively. We are Neutral Asia ex-Japan, Europe ex-UK and Japan over the next 1-3 months, based on technical readings. The MSCI Japan USD index has supportive price action and market regime indicators. It is now challenging its key resistance that it has failed to break since early 2023.
Investor positioning in gold and DM IG government bonds are no longer stretched. Our market diversity indicator, which uses price movements to deduce investor positioning in an asset, showed gold and DM Investment Grade government bonds were overbought in April. The indicator has now normalised for both assets, after the assets fell by 3.7% and 1.7%, respectively, below their April highs.
Key chart
Our stock-bond model score is at +1 (out of 5), as valuation and technical factors offset negative fundamental factors.
Fig. 20 Breakdown of our stock-bond rotation model’s scores since inception in Feb-23
Our technical model upgraded the S&P500 to bullish bias in early April, with the closest resistance at 6,088 and the closest support at 5,476.
Fig. 21 Our technical model turned bullish on S&P500 in early May
Fig. 22 Long- and short-term quantitative models are bullish risky assets
Long-term models below have a typical time horizon of 3-6 months, while short-term models have a 1-3-month horizon
Performance review
Foundation: Asset allocation summary
Foundation+: Asset allocation summary
Market performance summary
Source: MSCI, JPMorgan, Citigroup, Dow Jones, HFRX, FTSE, Bloomberg, Standard Chartered
*All performance shown in USD terms, unless otherwise stated
*YTD performance data from 31 December 2024 to 22 May 2025; 1-week performance from 15 to 22 May 2025
Our key forecasts and calendar events
Today, Tomorrow and Forever
Explanatory notes
1. The figures on page 5 show allocations for a moderately aggressive risk profile only – different risk profiles may produce significantly different asset allocation results. Page 5 is only an example, provided for general information only and they do not constitute investment advice, an offer, recommendation or solicitation. They do not take into account the specific investment objectives, needs or risk tolerances of a particular person or class of persons and they have not been prepared for any particular person or class of persons.
2. Contingent Convertibles are complex financial instruments and are not a suitable or appropriate investment for all investors. This document is not an offer to sell or an invitation to buy any securities or any beneficial interests therein. Contingent convertible securities are not intended to be sold and should not be sold to retail clients in the European Economic Area (EEA) (each as defined in the Policy Statement on the Restrictions on the Retail Distribution of Regulatory Capital Instruments (Feedback to CP14/23 and Final Rules) (“Policy Statement”), read together with the Product Intervention (Contingent Convertible Instruments and Mutual Society Shares) Instrument 2015 (“Instrument”, and together with the Policy Statement, the “Permanent Marketing Restrictions”), which were published by the United Kingdom’s Financial Conduct Authority in June 2015), other than in circumstances that do not give rise to a contravention of the Permanent Marketing Restrictions.
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