Global markets regained their footing in May, reversing April’s sharp declines as trade tensions eased. The US and China agreed to a 90-day tariff pause, which helped lift investor sentiment and restore markets to pre-Liberation Day levels. At the time of writing (23 May 2025), the S&P 500 Index and the Nasdaq Index are up 4.9% and 7.9% month-to-date. European markets have also advanced, with Germany’s DAX Index hitting a new all-time high. The local NZX 50 Index is also up 6.4%, while Australia’s ASX 200 Index lagged its global peers, up a more modest 2.7%, given weaker-than-expected economic data out of China, and some political uncertainty in the run-up to its federal election, which resulted in a majority win for the Labour government.
Economic data released in May painted a mixed picture. The International Monetary Fund revised its global growth forecast downwards to 2.8% for 2025, citing the lingering effects of trade disruptions and inflationary pressures. Meanwhile, central banks responded with caution. In the US, the Federal Reserve (the Fed) left interest rates steady at 4.25% - 4.50%, with Chair Jerome Powell emphasising the need for policy patience amid signs of stagflation (a period characterised by high inflation, with stagnant growth). Meanwhile, the Bank of Japan maintained its existing policy settings, continuing to signal a gradual tightening path in response to rising inflation.
While equity markets were higher, bond markets were mostly lower. US government bonds fell, in part, due to concerns around the US fiscal deficit and growing debt, while news that Moody’s had downgraded the US credit rating also posed headwinds. New Zealand bonds were also lower, driven by the jump in food prices, which could pose upside risks to near-term inflation.