T3 Monthly Insights - May 2025

May provided slight relief for equity markets, with continued recovery from late April. Investor anxiety quelled with volatility index VIX settling back below 20.0. With hope on the horizon for the U.S’s seemingly retreating stance on tariff aggression following judicial intervention, the S&P 500 finished the month up 6.2% to close at 5911.69, while the Nasdaq Composite skyrocketed 9.6% to close at 19,113.77.

Sino-American tensions took a turn for the better, both parties announcing a reduction in tariffs on May 12 - U.S slashing Chinese tariffs to 30% for 90 days and China revising American tariffs down to 10% from the previous 125%. Following legal adjudication by The U.S. Court of International Trade that ruled Trump’s tariffs to exceed authority granted by Congress, market-watchers are anticipating and hopeful for reduced sentiments in tariff aggression. This is still the case despite the United States Courts of Appeal eventually siding with Trump’s trade agenda in end May. 

Experts are still raising the possibilities of a U.S economic stagflation as a result of continued waning of consumer confidence and the economic repercussions of Trump’s tariffs. U.S consumer sentiment dropped to 50.8 in May from 52.2 in April, and consumer spending rose by only 0.2% as compared to the 0.7% in April. There were fewer jobs added in April, falling to 177K from the previous month’s 185K (revised down from 228K initially), and unemployment remained at 4.2%. The annual Inflation rate eased to 2.3%, the lowest since Feb 2021 and below the forecasted 2.4% - continuing the trend towards the Fed’s goal of 2%. However, economists are still wary that this progress might be reversed by tariff-induced inflation, where businesses pass on the costs to consumers as a result of increased costs of operations.  

The Fed kept interest rates steady at 4.5% in May. The Dollar made attempts at recovery from late April to mid May. However, with economic indicators and experts pointing towards likely economic slowdown, this initial recovery was made redundant, and the dollar continuously hovered below 100.00 to close the month at 99.33 (-0.14% m/m). 

In the Eurozone, major economies experienced a decrease in inflation - Germany’s rate decreased to 2.1%, Spain and Italy both reported 1.9% and France saw a substantial fall to 0.6%. This follows the continued trend of falling inflation, moving closer to the European Central Bank’s target if below 2%.The ECB is expected to implement a 25bps rate cut in June, marking the eighth rate cut since June 2024. The Euro closed 1.1347, an increment of 0.17% from the previous month, amidst easing inflation and economic growth - slowing but still growing. 

The Pound appreciated 0.96% to 1.3457 last month, strengthened by Q1 releases that revealed an 0.7% expansion in economic growth, outperforming major Eurozone economies. However, inflation saw an unforeseen increase to 3.5% - the highest in over a year - driven mainly by higher energy prices and taxes. The Bank of England reduced the base interest rate by 25bps to 4.25% on May 8, aiming to support economic growth amidst global uncertainties. 

Gold retreated slightly to $3,315.40 per ounce (-0.11% m/m), while Oil recovered to end the month at 60.79 (+4.43% m/m), buoyed by the optimism of improving trade talks between the U.S and China. However, gains in oil prices are expected to remain subdued with oversupply driven by expected OPEC+ output hikes in July.