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The Star
3 days ago
- Business
- The Star
Adapting to uncertainty continues in 2H25
UNCERTAINTY is widely considered a defining theme of the current global economic environment. In the first half-year of financial year 2025 (1H25), the global economy presented a mixed picture, with both signs of resilience and potential risks. The extraordinarily high levels of uncertainty and volatility are influencing global economic outlook, trade and investment, inflation, financial markets and commodity markets. The global economic policy uncertainty index (source: Federal Reserve Bank of St Louise) had surged to unprecedented record levels of 603.56 points in April 2025, more than a four times increase compared to the 2000 to 2024 average of 146.68 points. The VIX Index, a barometer for Wall Street's 'fear gauge', measuring market uncertainty and volatility, had surged to an average high of 41.3 points between April 2 and April 22, 2025, markedly higher than 24 points during the Covid-19 pandemic in 2019 to 2020, and 33.7 points in 2008 to 2009 during the global financial crisis. Heightened economic uncertainty is driven by a combination of factors, including trade tariffs policy uncertainty and escalating geopolitical tensions – from more than three years of the Russia-Ukraine military conflict, to the Gaza war, and recently, the Isreal-Iran conflict, which saw the United States launch strikes at Iran's nuclear enrichment facilities, sparking fear of escalation in the Middle-East conflict. In the World Economic Forum's latest survey of chief economists outlook conducted in the first half of April 2025, 87% of respondents expect businesses to delay strategic decisions, which would exacerbate recession risks, indicating a series of trade-policy shocks has darkened the outlook and threatens to paralyse economic and commercial decision-making. Challenges set to remain The respondents have a unanimous view that global economic prospects are set to weaken considerably this year, with 82% of them indicated that global uncertainty is seen as 'very high'; 56% expect conditions to improve over the next year, and 21% expect uncertainty in a year to be even higher. Nearly all the chief economists (97%) place trade policy among the areas of highest uncertainty, followed by monetary policy (49%) and fiscal policy (35%). The recent surge in uncertainty also increases the risk of damaging policy coordination missteps both within and between countries. This uncertainty is expected to weigh on key economic indicators, including trade volumes (70%), gross domestic product growth (68%) and foreign direct investment (62%). Heightened concerns surrounding the United States-China rivalry, trade tensions, inflation risks and geopolitical instability have significantly influenced investors' risk appetite due to their broader macroeconomic implications on the global economy, the United States and China economy. Unstable environment and market volatility have pushed investors toward traditional safe haven assets for inflation hedging like energy equities and gold, and focused on supply chain resilience, with potential near-term headwinds for regions and sectors exposed to energy costs and trade flows. During times of market volatility, global investors usually see the US dollar as a safe haven. But not this time around. Since the beginning of this year, the US Dollar Index had depreciated by 9.5% as of mid-June on concerns about the tariffs shock-inflicted slowing US economy, higher inflation expectations and a growing unease about US fiscal deficit and debt. Beyond the usual macro concerns, the dollar's typical 'safe haven' status is being challenged as investors demand a higher premium for holding US assets, leading to foreign central banks and institutional investors reducing the demand of the US Treasuries, raising the possibility they are gradually diversifying away from US-denominated assets. Global uncertainty A recent World Gold Council survey found that 73% of central banks see moderate or significantly lower US dollar holdings within global reserves over the next five years. Respondents also believe the share of other currencies, such as the euro and yuan, as well as gold, will increase over the same period. Going forward, geopolitical risks, sanctions exposure, and rising trade tensions are increasingly shaping reserve management decisions as global economic and political landscapes become more fragmented and uncertain. Gold prices, which have rallied significantly as much as 31% to hit a peak at US$3,434 per troy ounce on April 21, 2025 before easing to around US$3,329 per troy ounce on June 25, 2025, still higher from their 2010 to 2020 average of US$1,400. The elevated price levels were driven by heightened concerns over trade tensions, inflation and geopolitical instability, driving a strong demand for safe-haven assets. As gold has long been considered a reliable hedge against economic uncertainty, currency depreciation and inflation, investors are likely to keep gold glittering in 2H25 and in 2026 given the lingering policy uncertainty and highly uncertain geopolitical setup. Yet others are concerned the price of gold has risen so far, so fast that a market bubble is forming – and bubbles can burst. Has oil's risk premium arrived? Brent crude oil prices generally have softened since the beginning of 2025 due to increasing global supply and slowing global demand amid the geopolitical developments. The broader macroeconomic implications of rising geopolitical tensions in the Middle East resulted in wide swings in prices in the global oil market. On June 19, 2025, Brent crude future had climbed nearly 22% from early-month levels (US$64.63 a barrel on June 2), reaching a five-month high near US$78.85. Following the Isreal-Iran ceasefire, Brent crude price dropped to US$67.14 on June 24, 2025, amid rising concern over the potential disruption of key trade routes, particularly the Strait of Hormuz, which handles nearly 30% of global seaborne oil flows. In 2H25, we expect continued global uncertainty due to trade and capital flows dynamics, macroeconomic headwinds, global economic and financial markets fluctuations. Any unexpected shifts in the United States trade policy and tariff framework may lead to unforeseen market reactions. So far, only the United Kingdom has a deal, but still subject to 25% steel tariffs. The 90-day pause on the United States reciprocal tariffs, which began on April 9, is set to end on July 8. China's deadline is until mid-August. What is the likely scenario? What's next after the 90-day pause? If no deal is made by July 9, will countries face new tariffs, which could be much higher than the current 10% or be given another extension. Some have predicted that the tariff framework is to maintain 30% tariffs on China and China's 'friendly' partners while 10% to 15% tariffs on all other countries while the United States continues negotiating with all countries on non-tariff barriers. Section 232 of the Trade Expansion Act of 1962 remains a powerful negotiation tool to adjust imports tariff that threatens to impair the United States national security. The on-going geopolitical developments, particularly in the Middle-East, geopolitical fragmentation and major economic powers' rivalry will continue to affect the global economy both directly and indirectly through financial, trade and commodity price channels. While there is a ceasefire between Israel and Iran as of late June, the underlying tensions and the potential for renewed conflict remain due to Israel's view of Iran as an existential threat and Iran's continued nuclear programme. Bouts of volatility and uncertainty may continue in the 2H25 as investors navigate the evolving impact of the tariff policy on global growth, focusing on the United States and China's economy. Bond investors will also focus on the implications of the One Big Beautiful Bill on the government's budget deficit and debt, which would add at least US$2.8 trillion to the US$36.2 trillion US debt. The trajectory of oil prices and their economic impact remains highly uncertain, with the past five years' oil price volatility playing a critical role in global economic stability. The trajectory of oil price in the 2H25 is expected to remain elevated or to moderate, depending on global economic conditions, geopolitical events, as well as supply and demand dynamics. There are potential tailwinds from the trade deal certainty, a shift in focus from tariffs to taxes and deregulation, as well as the Federal Reserve's (Fed) pivoting of its monetary policy. Will the Fed cut interest rate in 2H25? The Fed's latest 'dot plot' outlining future interest rate moves suggests the central bank will still be cutting rates twice this year, though there is growing divided views among the Fed's voting members. Nine of the 19 officials favoured either zero or one cut this year, while eight saw two cuts and two others expected three. The Fed's chair believes it can stay in its wait-and-see mode as the United States economy is not in recession as the labour market continues to hold up. Increases in tariffs this year are likely to push up prices in June and beyond. The Fed's obligation is to anchor inflation expectations, preventing a one-time increase in the price level from becoming persistent inflation. Most Asian economies have experienced a slow down in 1H25 due to the tariffs policy uncertainty surrounding the trade landscape and concerns about broader economic fallouts and financial market volatility. While the 'front-loading' of exports has helped to provide a temporary uptick in exports for some countries to pre-empt higher tariffs during the 90-day pause, the effect of front-loading will taper in the months ahead. With moderating inflation risk, several central banks in Asia have cut interest rates in 2025 to address economic growth concerns and mitigate risks. Overall, the dynamics of trade policies, global economic fluctuations, capital flows and currency movements remain key influences on market and investors' sentiment in the Asia market in 2H25. Macroeconomic headwinds could potentially dampen domestic drivers as the trade tariffs impact on exports could spill over to domestic sectors. Heightened geopolitical risks, lingering trade tensions and slowing exports are testing the region's resilience. Lower interest rate and proactive government policies are expected to help mitigate growth threats.
AU Financial Review
15-06-2025
- Business
- AU Financial Review
Oil traders brace for turmoil as Iran crisis imperils supply
Israeli strikes on Iranian energy infrastructure are spooking markets as investors become increasingly concerned that a longer-term oil price spike will fuel inflation and derail hopes of interest rate cuts. Israel attacked South Pars, the world's largest gas field, at the weekend, causing production to be partially suspended. In later attacks, Israel struck Tehran's main gas depot and one of the country's largest oil refineries in separate parts of the capital. Iran is the third-biggest producer in the Organisation of the Petroleum Exporting Countries. The targeting of energy assets represents a new front in the conflict, which erupted on Friday when Israel launched a wave of missiles at the Islamic Republic's nuclear program. Oil prices in the United States surged as much as 14 per cent, before settling 7.5 per cent higher at $US73 a barrel. But traders are bracing for more wild swings when oil market trading resumes on Monday, particularly after Iranian military officials said Tehran was considering closing the Strait of Hormuz – a key shipping route that connects the Persian Gulf and the Gulf of Oman. Crude oil futures posted their biggest single-day increase in more than three years on Friday. 'A significant disruption to these flows would be enough to push prices to $US120 a barrel,' warned ING's head of commodity strategy Warren Patterson. 'Higher oil prices clearly reduce the chances of the Federal Reserve cutting rates in the third quarter.' The escalation in the Middle East took place in the same week that US inflation data for May came in lower than expected, and as officials in Washington and Beijing appeared to be closing on a deal to avert the worst of the trade tariffs threatened earlier this year. The positive sentiment pushed the ASX to a fresh record last week, while US equities traded just 1.6 per cent shy of its all-time high. But Israel's strike on Iran triggered an abrupt reversal on Friday, dragging the S&P 500 down 1.1 per cent as investors fled to the safety of gold, which lifted prices of the precious metal back near all-time highs. Wall Street's 'fear gauge' – the VIX Index – topped 20, a level that indicates a divide of calm and nervousness in financial markets. The local sharemarket is expected to follow Wall Street lower, with futures indicating the S&P/ASX 200 will drop 0.2 per cent, or 20 points, to 8532 at the open on Monday.
Yahoo
13-06-2025
- Business
- Yahoo
Drone Maker Airo Jumps 140% in Latest Post-IPO Debut Pop
(Bloomberg) -- Airo Group Holdings Inc. shares climbed 140% in their public trading debut on Friday after the company raised $60 million in an initial public offering, becoming the third company this month to more than double during its opening session. Shuttered NY College Has Alumni Fighting Over Its Future Trump's Military Parade Has Washington Bracing for Tanks and Weaponry NYC Renters Brace for Price Hikes After Broker-Fee Ban Do World's Fairs Still Matter? As Part of a $45 Billion Push, ICE Prepares for a Vast Expansion of Detention Space The stock pared earlier gains of as much as 291%, triggering volatility halts several times, to finish the day at $24 each on Friday in New York. The aerospace and defense tech firm on Thursday upsized its IPO to 6 million shares and priced the deal at $10 per share, below the marketed range of $14 to $16 apiece. The frenetic start gives the company, which makes the bulk of its revenue from its drone-making segment, a market value of $622 million based on the outstanding shares in its filing. Chirinjeev Kathuria, Airo's executive chairman, co-founder and largest shareholder, had indicated interest in buying as much as $5 million worth at the offering price, the filing showed. Airo's initial plan to go public in April had been frustrated by a spike in volatility, measured by the VIX Index, Wall Street's so-called fear gauge. The more recent fall in the VIX back closer to 20, plus the strong performance of recent IPOs such as Circle Internet Group Inc. and Voyager Technologies Inc and publicly-traded competitors to Airo such as AeroVironment Inc., had encouraged the company to revive the offering, Kathuria said in an interview with Bloomberg News. Having already met with investors in April, the offering was already well oversubscribed late Wednesday when Airo decided to reprise its plans to go public, enabling the deal to proceed after only a one-day roadshow and despite Thursday night's attack by Israel on Iran unsettling markets. 'With Iran and Israel, we always hope for a peaceful result but that also feeds into the demand because there is a lot more appetite for aerospace and defense investments,' Kathuria said. The debut surge, which pushed Airo's market capitalization to about $1 billion at the highs, also came just two days after shares of space and defense firm Voyager Technologies Inc. ended their debut session up 82% after more than doubling at one point during early trading. Circle's 168% first-day gain on June 5 following its IPO also demonstrated investors' rekindled enthusiasm for first-time share sales. Conflicts in Ukraine and the Middle East have highlighted the cost-effectiveness of drone technology in warfare. 'Modern warfare has completely changed because of drone technology,' Kathuria said. Airo's IPO also came just days after President Donald Trump signed executive orders aimed at accelerating domestic drone production to reduce the US's reliance on commercial drones imported from China. The company plans to begin making military drones in the US and get certified to sell these drones to the US Department of Defense in about six months, Kathuria said. Airo's existing drones already operate in European Union and NATO countries, and have been tested and deployed in the conflict in Ukraine, the filing shows. The drones have been used for reconnaissance and targeting by European North Atlantic Treaty Organization members, and have proved difficult to shoot because of their AI-enabled capabilities, Kathuria said. 'Today they don't have ammunition, but we are equipped and willing to do that if NATO countries and the US ask us,' he said. The company had raised only a small amount of money in the IPO to limit dilution to existing shareholders, Kathuria said. 'By going public we are able to access $200 million of financing from the Canadian government and other financing in the debt market,' Kathuria said. 'There's a lot of credibility in going public when you are bidding for NATO and US DoD contracts.' Cantor Fitzgerald & Co., BTIG and Mizuho Securities USA worked on the offering, the filing shows. Shares are trading on the Nasdaq Global Market under the symbol AIRO. (Updates with shares in first three paragraphs.) American Mid: Hampton Inn's Good-Enough Formula for World Domination The Spying Scandal Rocking the World of HR Software New Grads Join Worst Entry-Level Job Market in Years As Companies Abandon Climate Pledges, Is There a Silver Lining? US Tariffs Threaten to Derail Vietnam's Historic Industrial Boom ©2025 Bloomberg L.P. Sign in to access your portfolio
CNBC
11-06-2025
- Business
- CNBC
Wells Fargo says tariffs to hold back stocks this year, but then sees new highs in 2026
This year could be a washout for the stock market thanks to lofty tariffs, but 2026 could mark a return to new highs, according to the Wells Fargo Investment Institute. President Donald Trump's tariffs will continue to limit upside for equities this year, as corporate earnings come under pressure from higher inflation, constrained profit margins and a slower economy, but investors can start positioning for a recovery that's likely to come next year, wrote Darrell Cronk, president of the investment institute. "Significantly surpassing the equity-market highs reached early this year has likely been delayed by the tariff-related hit to consumer and business sentiment along with the imminent economic slowdown that we expect," Cronk wrote. "Without a recession, we believe the risk of further equity-market downside — beyond lows reached in April — is likely limited while upside reward potential is significant by year-end 2026," he added. .VIX YTD mountain Volatility Index (VIX), year to date. The reasoning behind the Wells Fargo thesis is this: Positive forces expected later this year, such as tax cuts and lower interest rates, in addition to lower oil prices, should offset some of the pressure from higher tariffs, helping the U.S. avoid a recession. What's more, Cronk noted that volatility historically occurs near market bottoms. In 10 comparable periods in the past, he said, when the VIX Index topped 40, the median 18-month forward return for the S & P 500 was 30%. The VIX topped 50 at one point during the April selloff and was last trading above 16. "In real time, the uncertainties can feel so large that it is difficult to look past them, but also in each case households and businesses adjusted, and generally, returns soon followed," he wrote. "In sum, the new tariffs are significant, and uncertainty may persist for some months to come," he continued. "However, we would follow the lesson of history and lean into equities." While near-term returns may remain muted, investors should "lean into the recovery" by allocating toward quality companies, Cronk said. He prefers U.S. large caps and U.S. midcaps, anticipating the U.S. will maintain its status as the global leader both economically and, by extension, in stocks. He also said he favors developed markets excluding the U.S. over emerging markets. "We view further periods of volatility as an opportunity to lean into equities to position for the gains we expect through 2026," Cronk said.
Bloomberg
02-06-2025
- Business
- Bloomberg
Hedge Fund Picton Buys Volatility, Fearing a New Tariff Tantrum
The head of Canada's Picton Mahoney Asset Management said the global market volatility that has faded in recent weeks is likely to return, and his firm is betting on it. Equity markets have rallied sharply since US President Donald Trump paused many of the tariffs he had announced in his 'Liberation Day' speech. The S&P 500 has surged 19% since the April 8 close and just notched up its best May since 1990. The VIX Index, a volatility gauge, has tumbled. It closed Friday at 18.57, compared with its lifetime average around 19.5.
