Global shares advanced in May as concerns over tariffs eased. The US and China agreed to a 90-day suspension of tariffs on most goods. Despite the tariff pause between the US and China, tariffs were still a source of market volatility as Trump threatened 50% tariffs on the EU, starting from 1 June. However, a day later he also delayed those tariffs to July. The more Trump threatens and then again delays tariffs, the less impact his reckless decisions have on the market. Wall Street even introduced the term »TACO« trade (»Trump Always Chickens Out«) as he reverses or delays each tariff decision.

In other news, Trump’s budget bill (»Reconciliation Bill«) was approved by the House of Representatives and will now proceed to the Senate, but may not pass there as a sufficient number of Republicans are opposing it. The bill would increase the budget deficit and add trillions of dollars to USA's already-bloated national debt. In addition the US economy contracted in Q1 2025 by -0.2% annualized, down from 2,4% growth in Q4 2024. Although the contraction is very small, it already occured before the import tariffs on China even went into effect and we're expecting a more severe contraction in Q2.

As a result of the growing deficit and negative GDP growth, ratings agency Moody’s downgraded the US's credit rating from the top Aaa rating to Aa1. A shrinking appetite for US dollars drove the 10-year treasury yield up to 4,40%. Nonetheless the US labor market still remained strong and inflation dropped to a 4-year low of 2,3%, prompting Trump to once again urge FED Chairman Powell to cut the interest rate. The pressure on GDP growth and growing US deficit appears to push some FED members into favoring a rate cut at this point. In our view a rate cut would indeed be appropriate even though we do expect US inflation to pick up again.

The deescalating tariff concerns however drove US markets up with the Dow Jones index gaining 3,94%, the S&P500 6,15% and the Nasdaq Composite 9,56%. After sliding almost 5% in April, the dollar remained quasi unchanged against the Euro at 1,1348 and gold remained unchanged at 3315$ per ounce. After tumbling in April, easing concerns on tariffs also pushed oil a bit higher to 60,79$ per barrel.

Also European stock markets gained with the Eurostoxx adding 4,00%. The German DAX index gained 6,67% and France's CAC index gained 2,08%. Slovenia's SBI index outperformed in May, adding 7,90%, closing at 2173,16. Eurozone's year-over-year GDP growth was unchanged from its first estimate at 1,2%. While still low it's gradually improving, but the question remains if and to what extent the tariffs could have an impact. Eurozone's inflation remained low at 2,2%.

The Japanese Nikkei 225 gained 5,33%. Market sentiment improved on positive news about trade negotiations between the US and China, easing recession concerns. Also the Hong Kong Hang Seng index gained 5,29%, regaining April's loss. While the delay to tariffs came as a relief, China continues to face headwinds from lacklustre domestic demand.

Rudy Marchant
Fund manager Primorski skladi

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