Global News Summary 12 to 17 May 2025
Summary
Global financial markets were shaped by a volatile mix of tariff diplomacy, macroeconomic divergences, and fiscal stress signals. The US struck a temporary trade truce with China and sealed a $600bn deal with Saudi Arabia, sparking midweek rallies before Moody’s downgraded US sovereign credit due to unsustainable deficits and rising debt maturities. Inflation in the US cooled to 2.3%, but long-term expectations and producer price deflation reflected mixed pressures. UK GDP beat forecasts at +0.7%, while Japan slipped into contraction at –0.7%. Australian employment and wage data signalled labour strength, and Europe braced for trade spillovers from redirected Chinese exports. AI continued to dominate strategic policy and corporate investment across the US, Middle East, and Asia. Despite isolated positive surprises, underlying risks—including recession in Japan, credit fragility in the US, and inflation uncertainty—kept global sentiment fragile.
What it means to Investors
For investors, the 12–17 May 2025 developments signal a fragile macro environment where tactical positioning is key:
US Credit Risk Rising – Moody’s downgrade highlights long-term fiscal risks, pressuring bond markets and raising the possibility of sustained higher yields. Investors may reconsider long-duration Treasuries and focus on quality credit or inflation-protected assets.
Tariff Truce = Relief Rally, Not Resolution – Temporary trade détente with China lifted equities midweek, but lingering uncertainty means markets will remain headline-sensitive. Equity gains may be short-lived unless structural trade progress is made.
Diverging Growth Paths – UK’s better-than-expected GDP and Australia’s job strength contrast with Japan’s contraction. Investors may look to overweight regions showing resilience (e.g., Australia, UK) and underweight those sliding into stagnation.
Inflation Mixed, but Still Sticky – Falling US PPI and CPI provide a case for rate cuts later in 2025, but rising long-term expectations and margin pressures temper that outlook. This suggests moderate exposure to growth equities, with selective defensive plays.
AI and Middle East Capital Flows – The $600bn Saudi-US deal and AI chip access for Gulf nations point to a pivot in capital deployment and geopolitics. Investors should track AI infrastructure, semiconductor demand, and Middle East equity markets.
In short, this week reinforced that macro risks remain elevated despite short-term rallies. Investors may benefit from a barbell strategy: defensives + opportunistic tech, while managing duration risk and avoiding overexposure to headline-driven sectors.
Here are the details:-
United States
Economic Growth & Inflation:
Inflation slowed to 2.3% YoY in April, helping spark a US equity rally, though economists noted most tariff impacts are yet to be felt.
Producer Prices unexpectedly fell −0.5% MoM in April (vs. +0.2% expected), the largest monthly drop in years, hinting at margin compression.
Consumer sentiment dipped while inflation expectations rose to multi-decade highs, raising concerns about future price stability.
Debt Securities & Credit Rating:
On 17 May, Moody’s downgraded the US sovereign credit rating from Aaa to Aa1, citing unsustainable deficits (>6% of GDP) and $9.3 trillion in upcoming debt maturities.
The 10-year yield jumped to 4.48%, and 30-year yield neared 5%, as bond markets priced in long-term fiscal strain.
Jobs:
No significant updates on jobs, but lower inflation and tariff truce are seen as temporarily alleviating pressure on the labour market.
Trade Policy & Tariffs:
Trump maintained China tariffs at 145%, despite easing some measures.
A US–China tariff truce was struck, including China suspending dual-use export bans and both sides lowering duties.
A $600bn US-Saudi deal was announced (AI, defence).
US assets rallied midweek, surprising short-positioned investors.
AI & Corporate Developments:
Saudi Arabia & UAE secured access to Nvidia/AMD AI chips in partnership deals.
OpenAI considered data centre expansion in the Middle East.
Apple & Perplexity explored alternatives to Google in AI search.
US to relax AI chip export rules, diverging from Biden-era controls.
CoreWeave surged +22% on Nvidia stake.
Applied Materials cut guidance; Coinbase rose on S&P 500 inclusion.
United Kingdom
Economic Growth:
Q1 GDP grew +0.7%, the strongest in a year, ahead of expected tariff impacts.
Jobs & Wages:
Wage growth remained high at +5.6% YoY (three months to March), but employers began cutting jobs ahead of rising payroll taxes.
Monetary Policy:
BoE cut rates by 25bps to 4.25% on 9 May, while emphasising a non-committal path forward.
Trade & Geopolitics:
Finalised a limited trade deal with the US, securing tariff cuts on cars and steel but retaining a 10% levy on general goods.
UK–EU reset hit roadblocks over youth mobility and fishing rights.
Eurozone
Growth & Inflation:
Investor confidence improved as tariff shocks faded.
German industrial production +3% MoM (March) on export rush before new US tariffs.
Debt & Policy:
The ECB reaffirmed flexibility, with rate cuts still under discussion amid weakening inflation.
EU threatened tariffs on $95bn of US goods if talks fail; WTO dispute also considered.
China-EU Trade Risks:
EU concerned about becoming a dumping ground for Chinese exports, now rerouted from the US.
Japan
Economic Growth:
Q1 GDP shrank −0.7% QoQ, pre-tariff impact, raising recession risk.
Capital Flows & Trade:
Foreign investors bought a record amount of Japanese equities and bonds, viewing Tokyo as a haven from the US “de-dollarisation” wave.
Jobs & Wages:
Nominal wages rose +2.1% YoY in March, down from 2.7% prior.
Export growth slowed to +2.3% YoY, under pressure from US tariffs.
Australia
Jobs:
Employment rose by 89,000 in April, jobless rate steady at 4.1%, indicating a robust labour market.
Wages & Policy:
Wages grew +3.4% YoY in Q1, led by public-sector hiring.
Markets expect 2 RBA rate cuts by December, despite firm wage growth.
Fiscal & Monetary Policy:
Large fiscal stimulus at a time of neutral monetary policy suggests the RBA may hold rates near-term.
China
Trade & Diplomacy:
Confirmed participation in US–China trade truce, agreeing to lower some tariffs and suspended dual-use export bans on 28 US companies.
Criticised UK–US trade deal as exclusionary to Chinese firms.
Economic Growth:
No new GDP data, but stimulus and easing of export bans signal Beijing’s intent to stabilise growth.
AI & Chips:
US still considers blacklisting Chinese chipmakers, though some officials advocate delay to preserve trade progress.
Thematic Takeaways
Economic Growth: UK (+0.7%) and Australia (+89k jobs) beat expectations; Japan contracted; US outlook muddied by Moody’s downgrade.
Jobs: Resilient in the US and Australia; UK labour market shows wage pressure but weakening hiring.
Inflation: US inflation slowed to 2.3% but long-term expectations rose; PPI deflationary.
Debt: Moody’s downgrade of the US sparked a spike in yields, adding to long-term fiscal stress warnings.
AI: Major global activity: Nvidia, OpenAI, Apple, and chip diplomacy dominated headlines.
Recession: Risks rising in Japan and the US (per Moody’s); not yet imminent but under watch.