By Jan Faure
Global marketsposted strong gains in May, shaking off a turbulent April as easing tradetensions and resilient earnings helped restore investor confidence. A temporarytruce in the US-China trade dispute, alongside solid corporate earnings,offered markets a reprieve from the policy-driven volatility that has dominated2025.
The S&P500 rose 6.2% for the month, while the tech-heavy Nasdaq Composite jumped 9.6%,its best monthly performance since November 2023. After weeks of uncertainty,the Trump administration announced that the US and China would roll backtariffs significantly over a three-month negotiation window. US tariffs onChinese goods were reduced from 145% to 30%, while China lowered duties from125% to 10%. The move was widely welcomed by markets as a sign that coolerheads may yet prevail.
Meanwhile, theUS House of Representatives passed a sweeping tax and spending bill backed byPresident Trump. The bill extends tax cuts from Trump’s first term whileincreasing defence and immigration funding. The Congressional Budget Officeestimates the legislation will add $3.8 trillion to US national debt over thenext decade, raising alarm bells across credit markets. Long-term bond yieldsspiked in response, with the US 30-year Treasury yield hitting a multi-year high.
Moody’sdowngraded the US sovereign credit rating from Aaa to Aa1, citing unsustainablefiscal dynamics and rising debt burdens. Despite the downgrade, US TreasurySecretary Scott Bessent dismissed the move as a “lagging indicator,” blamingelevated debt levels on the previous administration. He reaffirmed theadministration’s commitment to reducing spending and driving growth throughreforms.
The fiscalrisks come at a time when the Federal Reserve is facing a more complex policylandscape. Fed Chair Jerome Powell stated that the central bank is in no rushto cut interest rates, citing heightened risks of both inflation andunemployment due to supply-side disruptions, tariffs, and geopoliticaluncertainty. The Fed held rates steady in May, and the message from the FederalOpen Market Committee (FOMC) was clear: while inflation has moderated, itremains too soon to ease.
Europeanmarkets made solid gains for the month despite President Trump threatening toimpose a 50% tariff on European imports. The Euro Stoxx 50 advanced 4.0% whilethe FTSE 100 added 3.3%. European equities have gained favour with investorsthis year as resilient corporate earnings, attractive valuations and Germany’shistoric fiscal spending plans boosted regional sentiment.
In Asia, equitymarkets rebounded as the tariff relief boosted optimism. The CSI 300 Index rose1.8% while Hong Kong’s Hang Seng Index gained 5.3%. Japan’s Nikkei 225 rose 5.3%despite concerns over the adverse impact of US tariffs on the country’seconomy.
In thecommodity space, gold remained resilient as investors sought protection frominflation, geopolitical shocks, and currency volatility. Crude oil prices,however, remained under pressure amid concerns over weakening global demand andrising OPEC+ output.
Looking ahead,investors will be watching closely for signs that the US-China truce holds, aswell as any potential escalation in trade rhetoric with Europe. Fiscal risksremain a key overhang for US markets, particularly as bond markets begin toreprice long-term debt sustainability. At the same time, earnings have provenmore robust than expected, and equity valuations, particularly outside the US, continueto look attractive in a global context.
Table 1: Global Indicators – Local reporting currencies
