Geopolitical turmoil set to impact economic sectors and investment trends
A Shift in Trade Tensions, Persistent Inflation Worries
The American personal consumption expenditure price index, a key indicator by the Federal Reserve, dropped to 2.5% year-over-year in April, signaling a Figure 1 deceleration in inflation. Yet, the threat of renewed global trade tensions looms large, creating complexity in monetary policy decisions.
As global trade turmoil persists, the futures market predicts a 95% likelihood of the Fed maintaining its policy rate in June, with an additional 70% expectation of keeping the rate steady in July. However, concerns related to simmering trade tensions complicate the picture (Business Recorder, 2025).
Notably, the US continues to accuse China of breaching its trade agreement. US social media and the trade representative have highlighted these compliance issues, with trade talks seemingly 'stalled' according to the US Treasury Secretary (Business Recorder, 2025). Despite this, there's still potential for a high-level meeting between American and Chinese representatives (Business Recorder, 2025).
Last week saw a US federal court overturning Trump's "Libertarian Day" before a subsequent reinstatement of his request to reestablish tariffs. This instability resulted in volatile financial markets (Business Recorder, 2025).
The US-EU trade friction is simply postponed until July 9, with the EU yet to propose a deal for the US president's consideration, who has made it clear that he plans to impose tariffs (Business Recorder, 2025). However, the potential for an intensification in the trade tariff dispute between the US and China remains (Business Recorder, 2025).
Some analysts still argue that tensions are intensifying, with media reports indicating that the US may consider broader technology sanctions against China, and a potential crackdown (Business Recorder, 2025).
In terms of the domestic economy, while consumer prices remain comparatively stable, inflation expectations remain elevated (Business Recorder, 2025). Traders will scrutinize the weekly employment report for any indications of a cooling labor market, as this could influence future interest rates (Business Recorder, 2025).
Several economic indicators are set to be released this week, including the ISM Manufacturing index, US JOLTS job openings, US ADP employment figures, ISM services data, and US weekly jobless claims (Business Recorder, 2025). Furthermore, the Bank of Canada and European Central Bank will make monetary policy announcements on Wednesday and Thursday, respectively (Business Recorder, 2025).
Playing Nostradamus, here's a preview for the week's trends in gold, EUR, GBP, and JPY (Business Recorder, 2025).
In essence, common themes this week revolve around ongoing geopolitical issues and Donald Trump's comments concerning economic matters, with global trade tensions remaining a significant presence (Business Recorder, 2025).
Recent Developments and Impacts
The increased uncertainty surrounding US-China trade talks has raised concerns of inflation and driven markets into volatility (Business Recorder, 2025). In late May 2025, both countries agreed on a 90-day pause of additional tariffs while maintaining a 10% extra tariff on certain goods (Business Recorder, 2025). However, renewed accusations of trade agreement violations and the approaching expiry of the 90-day pause have kept tensions on edge (Busrecorder, 2025; OECD, 2025).
Global inflation is on the rise due to trade tensions and tariff hikes, with the OECD forecasting inflation at 4.2% for 2025 (OECD, 2025). Persistent inflation could prevent central banks from cutting interest rates as swiftly as the market might expect. The OECD suggests that sustained high interest rates may be necessary until inflation begins to ease (OECD, 2025). Rising trade costs and ongoing supply chain disruptions are key drivers of this inflation spike (OECD, 2025).
| Indicator | 2025 Forecast (OECD) | Notes/Implications ||---------------------------|---------------------|-------------------------------------------------|| Global GDP Growth | 2.6% | Slower due to trade tensions and inflation || US GDP Growth | 1.1% | Marginal growth, tariffs and inflation risks || OECD Inflation | 4.2% | Up from 3.7% in December, driven by tariffs || G20 Inflation | 3.6% | Rise in inflation rate || Interest Rate Outlook | — | Possibility of sustained high rates |
(OECD, 2025)
Despite temporary easing in trade tensions, underlying concerns remain, contributing to increased inflation and heightened uncertainty for economic growth. The coming weeks will be crucial as the 90-day pause nears its end, with the possibility of either further escalation or progress towards more stable trade relations (Busrecorder, 2025; OECD, 2025).
Further Reading:
- He Lifeng and Scott Bessent Initiate US-China Trade Negotiations
- Tariff Rally in Steel Stocks Amidst Doubling of Tariffs
- OECD Warning on Inflation and Economic Growth
- The Economist Intelligence Unit on US-China Trade Tensions
- The ongoing uncertainty in US-China trade talks has led to increased volatility in gold funds, as traders seek safer investment options due to inflation concerns.
- Despite the Federal Reserve maintaining its policy rate, the persistent risk of renewed trade tensions could lead to increased interest in gold as an inflation hedge.
- With concerns over inflation and trade tensions, some funds are shifting their focus towards index funds that track gold prices.
- As global inflation rises due to trade tensions and tariff hikes, a trader might consider taking a conservative approach, allocating more funds towards gold, which is traditionally viewed as a hedge against inflation and currency devaluation.
- The finance sector is closely watching potential meetings between American and Chinese representatives, as any progress or escalation could impact their investment strategies, given the economic implications and associated impacts on inflation, interest rates, and business.
