Neither “Restrictive” nor “Neutral”: The ECB Strips Its Monetary Policy of Labels and Sticks to the Data

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The European Central Bank (ECB) has responded to rising economic risks and the deterioration of financing conditions in the euro area with a new deposit rate cut to 2.25%. The decision was unanimous. However, the most noteworthy aspect was ECB President Christine Lagarde’s perspective on the potential impact of Trump’s tariff policies on the eurozone economy—and what that means for the ECB.

Despite this, Ulrike Kastens, Senior Economist for Europe at DWS, highlighted that Lagarde did not commit in advance to any future interest rate path. “The high level of uncertainty still demands a focus on data dependence and meeting-by-meeting decisions, especially since the impact of the tariff policy is unclear. While downside risks to the economy dominate, the impact on inflation is less certain, as it also depends, for example, on potential EU retaliatory measures,” Kastens noted.

According to her analysis, unlike the post-March meeting statement, it was not declared that monetary policy is “significantly less restrictive.” “For Lagarde, labels like ‘restrictive’ or ‘neutral’ are not helpful to characterize monetary policy because, in a world full of disruptions, monetary policy must be calibrated to achieve sustainable price stability. That is the only destination,” the DWS economist emphasized.

Lale Akoner, Global Markets Analyst at eToro, agreed with Kastens that the biggest surprise was that the ECB no longer labeled monetary policy as “restrictive” in its statement, though it also did not claim to have entered “neutral” territory. In her view, this change suggests the possibility of further rate cuts amid rising political uncertainty stemming from U.S. tariff decisions and their impact on European growth.

“Given the growing political uncertainty worldwide, the ECB is expected to adopt a more data-dependent approach, similar to the Fed. Nonetheless, while tariffs pose downside risks to growth, increased European spending on defense and infrastructure could partially offset them. If rising deficits threaten debt sustainability, the ECB may have to resume large-scale bond purchases through its Transmission Protection Instrument (TPI),” Akoner explained.

What Comes Next?

According to Konstantin Veit, Portfolio Manager at PIMCO, it’s clear that downside risks to growth currently outweigh concerns over temporary price increases or the state of public finances. He recalled that Lagarde stated, “There is no better time to depend on the data,” reaffirming that decisions will continue to be made on a meeting-by-meeting basis, and that data flows will determine the future path of monetary policy.

Looking ahead, Veit considers it likely that official rates will continue to gradually fall and that the ECB is not yet done with rate cuts. “The current pricing of the terminal rate, around 1.55%, suggests a slightly accommodative destination for the deposit facility rate. In June, with new staff projections, the ECB should be in a better position to determine whether a clearly stimulative policy will be necessary,” he said.

Orla Garvey, Senior Fixed Income Manager at Federated Hermes, noted that Lagarde balanced her changes in language. “The disinflation process is seen as ongoing, and growth is under short-term pressure, which likely supports current market pricing for rate cuts. This is consistent with the progress already made on inflation, and the impact of a stronger currency and lower oil prices. The ECB continues to keep all options open without committing in advance to any specific interest rate path,” Garvey explained.

Roelof Salomons, Chief Strategist at the BlackRock Investment Institute, also agreed that the direction of interest rates remains downward, though he sees some roadblocks. “The ECB may need to adjust its path to respond to both the tariff pass-through and fiscal stimulus in Europe, without much new data since the last meeting to guide decisions. President Lagarde appeared more concerned about growth risks than inflation,” Salomons said after the ECB’s April meeting.

In Salomons’ words: “When you’re running downhill, sometimes you have to keep running not to fall.” In the short term, he sees a slightly higher probability of the ECB cutting rates below the neutral level, which he currently estimates at around 2%. In the long term, however, he acknowledges that increased fiscal spending will raise borrowing needs and push neutral rates higher. “The global economy has endured several shocks. Tariff uncertainty is another one affecting both demand and supply, raising the cost of capital. Europe is not immune, but remains a relative beacon of stability thanks to strong balance sheets and policymakers’ ability (and willingness) to respond. Greater unity and a pro-growth agenda in Europe could significantly boost demand,” concluded the BlackRock expert on the challenge facing the ECB.

At Amundi, they expect the ECB to continue cutting rates until its official interest rate reaches 1.5%. And, if financial conditions continue to tighten, they also expect the ECB to slow the pace of its balance sheet reduction. All of this aligns with macroeconomic expectations which, according to the analysis of Mahmood Pradhan, Head of Global Macro at Amundi Investment Institute, are characterized by a disinflation process that is on track and growth prospects that have deteriorated due to rising trade tensions.

“The eurozone economy has developed some resilience to global shocks, but growth prospects have deteriorated due to increasing trade tensions. The rise in uncertainty is likely to dampen household and business confidence, and the adverse and volatile market reaction to trade tensions may have a restrictive impact on financing conditions. These factors may continue to weigh on the eurozone’s economic outlook,” concludes Pradhan.

The Long Road of the Fed and Jerome Powell Until the End of His Term in May 2026

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From Donald Trump’s first term (2017–2021), we know that he favors low interest rates and a not overly strong dollar—two ideas that now appear to clash with the work Jerome Powell has done at the helm of the Federal Reserve since February 2018. His current term as Chair of the central bank ends in May 2026, though he will remain a Governor until February 2028. Without a doubt, the controversy between Trump and Powell is heating up, particularly after Powell’s recent speech on April 16 at the Economic Club of Chicago, where he addressed U.S. economic prospects.

In his address, Powell emphasized that the U.S. economy remains in a solid position, though he acknowledged that it faces downside risks due to uncertainty generated by trade policies, especially the new tariffs imposed by the Trump administration.

“At the moment, we are in a good position to wait for greater clarity before considering any adjustment in our monetary policy stance. We continue to analyze incoming data, the evolution of the economic outlook, and the balance of risks. We understand that high levels of unemployment or inflation can be harmful and painful for communities, families, and businesses. We will continue doing everything in our power to achieve our goals of maximum employment and price stability,” concluded Powell.

Beyond this tempered conclusion, Powell delivered key messages about the relationship between monetary policy and the Trump administration’s tariff strategy:

“As we better understand changes in policy, we will gain a clearer view of their implications for the economy and therefore for monetary policy. It is very likely that tariffs will generate at least a temporary increase in inflation. The inflationary effects could also be more persistent. Avoiding that outcome will depend on the magnitude of those effects, how long they take to fully pass through to prices, and ultimately on keeping long-term inflation expectations well anchored.”

Juan José del Valle, analyst at Activotrade, remarked:

“Powell’s Wednesday speech raised doubts about the economic outlook, and Trump’s harsh tone toward the Fed Chair—calling into question the institution’s independence—led the Nasdaq to fall more than 3% during the session.”

Trump’s Response

President Donald Trump responded the following day, expressing his displeasure with Powell for not lowering interest rates and even suggesting his removal. According to international news agencies, the White House is reportedly evaluating the dismissal of the Fed Chair. Bloomberg reported that Kevin Hassett, economic advisor to the White House, said: “The president and his team continue to study the matter.”

This isn’t Trump’s first criticism of the Fed. Earlier this month, he criticized the central bank’s “slowness” in lowering rates via a post on Truth Social, and recently labeled the Fed’s reports a “complete disaster,” accusing Powell of “playing politics” by not adjusting interest rates—especially compared to the ECB, which has implemented multiple cuts.

The Stakes for the Fed

Experts warn that this political pressure from the White House adds to the already challenging situation the Fed faces: balancing inflation and growth risks.

“The bank appears focused on preventing the unanchoring of inflation expectations. The latest New York Fed survey highlighted this risk, showing that Americans’ short-term inflation expectations have risen significantly, while economic outlooks have sharply deteriorated.”

However, U.S. retail sales offered a more reassuring signal—though the figures were driven in part by early household purchases ahead of tariff implementation. The true impact of the trade war may take time to reflect in economic data. Still, uncertainty is already weighing on businesses: visibility has plummeted, and order books are thinning, as shown by ASML’s figures.

Some firms are directly on the front lines of the trade war: Nvidia is expected to take a $5.5 billion asset loss due to the ban on exporting its H20 chips to China, according to Edmond de Rothschild AM’s daily analysis.

Can the President of the Fed Be Dismissed?

According to the Federal Reserve’s own rules, the Chair cannot be dismissed for political reasons or policy disagreements. Under the Federal Reserve Act, Board members can only be removed “for cause”. However, the law does not explicitly define what that entails. Legal experts interpret “cause” to mean misconduct, inability to perform duties, corruption, extreme negligence, or legal violations.

“While legal scholars argue that a president cannot easily remove the Fed Chair, and Powell has stated he would not resign if asked by Trump, the latest comments from the White House are forcing investors to seriously consider the implications of a possible dismissal,” Bloomberg notes.

Historically, no Fed Chair has ever been removed. According to legal experts, any attempt to dismiss Powell for political reasons could trigger legal challenges, provoke a crisis of confidence, and prompt a negative market reaction as the institution’s independence is undermined.

United States, Canada, and Australia: The Countries With the Highest Stock Market Participation Rates

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At a time when financial markets are experiencing increasing volatility, household interest in stock markets remains a key indicator of economic confidence. Which countries invest the most? According to the latest study* by HelloSafe, the citizens of the United States, Canada, and Australia are the most active. After analyzing cultural, economic, and regulatory dynamics, the authors conclude that there are significant differences from one continent to another.

To understand the results of this report, it is necessary to take into account that the data presented on this map are the most recent available, and correspond to 2023 and 2024. “As there are no official statistics on the matter, there is a margin of error between 5% and 10% due to fluctuations in stock asset ownership and the difficulty of estimating the number of such owners. The figures include investors who directly own a stock portfolio, but also people who invest indirectly in stock assets through various financial vehicles (such as life insurance, for example),” clarify the authors of the report before we delve into its conclusions.

The analysis of stock ownership rates reveals marked disparities between continents since in North America, households have the highest rates, with 55% in the United States and 49% in Canada, reflecting a strong investment culture. Oceania follows this trend, with 37% in Australia and 31% in New Zealand. In Europe, there are significant differences as Nordic countries like Sweden (22%) and Finland (18.7%) are ahead of large economies like France (15.1%) and Germany (14.2%).

In Asia, rates remain globally modest, despite the dynamism of financial centers such as Hong Kong (13.8%) and Japan (15.2%). Lastly, emerging countries in Latin America and Africa, such as Brazil (8%) and Morocco (0.5%), present much lower levels, illustrating still-developing financial markets.

Pauline Laurore, finance expert at HelloSafe, explained: “The difference in stock market participation between countries can be explained by a combination of structural factors. In countries like the United States and Canada, investment in equities is deeply integrated into retirement savings plans —through pension funds— and supported by strong tax incentives. The financial culture there is more developed, and access to markets is facilitated by low-cost platforms and favorable regulation. In contrast, in many emerging countries, financial infrastructures are less mature, investment products are not widespread, and savings are still mainly channeled into real estate or low-risk assets. Even in highly populated countries like India and China, the low level of stock market penetration (6–7%) shows that there is considerable growth potential, provided educational, technological, and institutional obstacles are overcome.”

The analysis of the absolute number of shareholders reveals significant differences between countries in terms of demographics and economic development. In North America, the United States dominates with more than 185 million investors, far ahead of Canada, with 19 million. In Asia, although the proportion of investors is lower, the volume is impressive due to population: China (98.7 million) and India (85.8 million) rank among the global leaders.

In Europe, the figures are more modest despite advanced economies: the United Kingdom (22 million) and Germany (11.8 million) stand out, while France has 10.2 million holders. In Latin America, Brazil stands out with 17.1 million investors, far ahead of its neighbors. Finally, in Africa, South Africa leads the list with 8.47 million investors, which contrasts with much lower figures in Morocco (189,500). These figures reveal the combined influence of standard of living, investment culture, and demographic weight.

U.S., India, and Brazil: The Three Best Stock Market Performers of the Last 10 Years

An analysis of annualized returns over the past 10 years shows that the United States, with the S&P 500, remains at the top with a return of 16.89%, making it one of the most profitable indices of the period. Emerging markets, especially Brazil and India, closely follow, with returns near 15.9%, offering attractive potential despite their volatility. Vietnam and New Zealand also stood out with respectable, though more moderate, returns (12.22% and 10.66%, respectively).

In contrast, markets such as the United Kingdom (2.67%) and Spain (1.65%) performed significantly worse, suggesting less dynamic growth during the period. Other European countries like Portugal (1.71%) and France (5.93%) also underperformed compared to their global counterparts.

The HelloSafe study analyzes, in a new report, the rate of household participation in the stock market across 32 countries worldwide. This study examines countries where households allocate a significant portion of their savings to equities and other investment products.

Tariffs, a Weak Dollar, and Uncertainty: The First 100 Days of Trump

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Donald Trump has completed the first 100 days of his term as President of the United States, making it a timely moment to assess this highly significant period. Some of the words that best capture what has transpired since January 20, 2025, include: tariffs, uncertainty, volatility, and declines.

According to Aberdeen Investments, a striking statistic to illustrate these months is that this is the only presidential term in which the S&P 500, the Dow Jones, and the FTSE World have all declined during the first 100 days.

Furthermore, U.S. economic growth projections continue to deteriorate. A Bloomberg survey reveals that the average forecaster assigns a 45% probability to a recession in 2025, while Apollo Management has raised the alarm by predicting not only a recession but also a stagflation scenario beginning in June, with mass layoffs expected in the trucking and retail sectors.

“The current financial market landscape presents a dangerous combination of weakening economic conditions, geopolitical tensions, and uncertain monetary policy. In the U.S., the risks of recession and stagflation are increasing, while fiscal expansion, far from easing, is intensifying, fueling concerns about the sustainability of public debt. Technical support from corporate buybacks may provide temporary relief but doesn’t change the underlying slowdown,” notes Felipe Mendoza, Financial Markets Analyst at ATFX LATAM.

100 Days by the Numbers

For Ben Ritchie, Head of Developed Market Equities at Aberdeen, these 100 days of Trump 2.0 have starkly shown that when governments and markets collide, investors often lose out. “While market volatility may offer long-term buying opportunities for patient and contrarian investors, it can also wreak havoc on short-term investor expectations,” he reminds.

In this regard, global asset managers have a clear view: while markets initially expected Trump’s presidency to unleash American businesses’ animal spirits via tax cuts and deregulation, a more sober assessment has now taken hold. “Trump is doing what he said he would on tariffs—and more. While we assume tariffs may decline going forward, there’s considerable uncertainty. Both tariffs and uncertainty represent a stagflation shock to the U.S. economy (slower growth, higher inflation), and equities have had to adjust accordingly,” says Paul Diggle, Chief Economist at Aberdeen Investments.

Mario Aguilar, Senior Portfolio Strategist at Janus Henderson, summarizes the period: “Trump’s first 100 days have been marked by increased volatility across all markets and rising investor doubts regarding the U.S.’s role and the dollar’s status in the global economic system. The volatility has undoubtedly been driven by the executive orders issued by Trump—130 so far this year. By comparison, in his first year, Biden issued 77, and Trump issued 55 during his first term. Beyond the executive orders, we must also consider the impact of Trump’s statements and opinions posted on X about various social and economic topics.”

The Tariff Issue

Trade policy has taken center stage over the past 100 days—and its impact is clear. In the short term, Aguilar notes that these policies have caused significant declines in equity markets and a rise in 10-year Treasury yields. “This increase in rates seems to have prompted Trump to delay the implementation of tariffs by 90 days. Short-term volatility is likely to persist, but the longer term is more worrying. The attack on supposed U.S. allies with high tariffs will likely lead to the creation of new supply chains, new trade alliances, and perhaps a new dominant global trade currency other than the dollar,” he points out.

According to Maya Bhandari, Chief Investment Officer for Multi-Asset EMEA at Neuberger Berman, tariffs are the area where President Trump has most clearly “overdelivered,” though she notes that the latest move—a “pause” until July 9 on the temporary activation of the so-called “Trump option”—has brought some relief. “These are 90 days of surface calm, with intense behind-the-scenes negotiations,” Bhandari explains.

This expert at Neuberger Berman notes that this has already led to visible changes—for example, the effective U.S. tariff rate has risen from 2.5% at the start of the year to nearly 17.5%, reflecting 25% tariffs on steel, aluminum, and automobiles, plus a universal 10% tariff. “In this regard, we’ve gone back to the 1930s–1940s. This, in turn, introduces significant downside risks to growth (we expect a 0.5% to 1% impact on U.S. real growth) and upside risks to inflation (3.5% to 4%). For example, growth could be just one-sixth of what it was in 2024. The adjustment will take time, and not all asset markets have adapted—for instance, with valuations at 20 times projected 2025 earnings, U.S. equities still look expensive by historical standards,” she warns.

Dollar Weakness

For Kevin Thozet, member of the investment committee at Carmignac, one of the most striking features of Trump’s first 100 days is the dollar’s 10% decline over the year. “Despite Scott Bessent’s claims, market action in April looks less like a ‘normal deleveraging’ and more like a silent exodus of real capital, both domestic and foreign, from the U.S. due to cyclical factors (stagflation risk) and structural ones (questioning of the U.S.-centered monetary system),” he explains.

In his view, with Trump’s attacks on the independence of the judiciary and the Federal Reserve nearing a constitutional crisis, the likelihood of this silent capital exodus accelerating into a full-blown dollar flight increases. “The normalization of the dollar could go hand-in-hand with another downward correction in U.S. equity valuations. In fact, such a scenario could trigger the reappearance of the ‘dollar smile’—where the dollar appreciates when macroeconomic conditions deteriorate—although the activation point is now expected to be much lower than historically,” Thozet argues.

From Janus Henderson’s perspective, attacks on the Fed and Jerome Powell are dangerous because currency strength depends partly on the stability and independence of monetary policy and the central bank. “If a central bank loses market credibility and is seen as politically driven rather than data-driven, inflation expectations could become unanchored. That would lead to sharp equity declines and spikes in bond yields. It could also call into question the dollar’s reserve status, potentially dismantling the post-Bretton Woods order, with negative global impacts—especially for the U.S. economy if international investors start liquidating U.S. bond positions,” Aguilar states.

Ripple Effects

Finally, Rebekah McMillian, Associate Portfolio Manager on the Multi-Asset team at Neuberger Berman, notes that aggressive trade policy and new tariff announcements have unleashed greater market volatility and triggered key themes shaping markets in 2025 so far. She highlights two main effects: first, a downward revision in U.S. (and therefore global) growth prospects due to cooling economic activity, contrary to the “soft landing” narrative prevalent earlier in the year. Second, she notes significant shifts in fiscal and economic policy approaches worldwide—especially in Germany and China, which have launched support measures to counter the negative effects of tariffs and bolster their domestic economies.

“As a result, we’ve seen a clear risk-off reaction in markets, significant performance divergence between U.S. and non-U.S. assets, a weaker dollar, and U.S. Treasury bond sell-offs—all sharply contrasting with the post-election ‘American exceptionalism’ narrative,” says McMillian.

According to international asset managers, the Trump 2.0 shock is far from over. “The damage should not be underestimated. U.S. policy-making has been made a laughingstock, and the current uncertainty demands higher risk premiums—especially from foreign investors in U.S. assets. Above all, companies are voicing real concerns about the impact on demand and earnings prospects. The Trump shock isn’t over. The odds remain high that macro, valuation, sentiment, and technical indicators for U.S. assets will continue flashing red,” states Chris Iggo, CIO of AXA IM.

The Investor’s Dilemma

This entire context has left investors with a clear dilemma over the past 100 days: whether to react or stay the course. According to David Ross, CFA, International Equity Manager at La Financière de l’Échiquier (LFDE), Trump’s second term has made fund managers’ jobs significantly harder. “From a long-term perspective, we’re reassessing positions based on returns and the potential impact of tariffs in the coming years. In the short term, given how quickly policies can change, relevant analysis is almost impossible. All we can do is speculate—and speculation isn’t enough to make sound investment decisions,” Ross notes.

In his view, just a few months ago we were in a bull market where investors used dips as buying opportunities, but the rise in risk premiums for U.S. assets has shifted market sentiment. Now, he believes, we’re in a bear market mindset—one summed up as “sell the dip.”

“In recent weeks, the S&P 500 has repeatedly failed to break above the 5,400-point level. We now view this as the new ceiling. And since the biggest rallies often occur in bear markets, my advice to the team is simple: don’t panic and remain highly cautious,” Ross concludes.

Finally, Amadeo Alentorn, Systematic Equity Manager at Jupiter AM, notes that we’ve gone from a 2024 ending in uncertainty—but with optimism—to deeper uncertainty with more pessimism. “This shift is evident in investment styles. Investors have moved away from expensive, fast-growing companies—especially in tech—toward cheaper, undervalued, defensive stocks that didn’t benefit from the tech boom. This shift has been driven by erratic U.S. policy and the cooling of growth expectations and inflation trends,” he explains.

In this context, Alentorn recommends building more diversified portfolios, especially with strategies designed to decouple from overall market behavior. “2025 will be a year of volatility. Even if all tariffs were suddenly reversed, Trump’s impact on business, consumer, and investor confidence is lasting. We’re witnessing a historic regime change. After years of strong equity returns above historical averages, we’re entering a new cycle in which we must rethink how to navigate the next five years,” the Jupiter AM manager emphasizes.

Massive Sell-Offs and Corrections Reach Fixed Income: How Do Tariffs Affect Bonds?

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The trade war continues its course with the entry into force of Trump’s 20% tariffs on the EU and 125% on China, with red coloring the Asian and European stock markets. No one escapes the sharp declines driven by the imposition of tariffs and the uncertainty surrounding the reaction of the affected countries and their negotiating capacity. Fixed income assets are also suffering the impact of tariffs and the overall context of volatility.

“Currently, markets are fearful and operating accordingly. Even after the impact of the tariff announcement last week, we have seen very diverse headlines and even a temporary risk rally triggered by a televised interview with some unfortunate statements. Progress in trade agreements with Japan and South Korea seems promising, but negotiations with China and the European Union will be more decisive for both market volatility and global economic growth,” says Aaron Rock, Head of Nominal Rates at Aberdeen Investments.

According to Marco Giordano, Chief Investment Officer at Wellington Management, fixed income markets rose amid a widespread risk-off movement. “Yields fell in major economies, led by Australia, along with Japan, New Zealand, and China. European yields followed the same path, with markets pricing in a 90% probability that the ECB will cut interest rates at its next meeting on April 17. U.S. Treasury yields fell across the curve, with the front end leading the move. In credit markets, the Credit Default Swap Index (CDX) for U.S. high yield bonds widened by 20 basis points following the announcement, 10 points more than its euro counterpart, indicating greater risk aversion in U.S. markets,” notes Giordano.

In fact, the yields on 10-year U.S. Treasury bonds rose to 4.47% before stabilizing at 4.33%, indicating a massive sell-off in the bond market. “Bond markets have shown notable fluctuations over the last two trading sessions. Government bond yields are experiencing new volatility, and credit spreads are finally showing a real impact from macroeconomic and stock market pressures,” explains Dario Messi, Head of Fixed Income Analysis at Julius Baer.

According to Rock, yield curves may continue to steepen. “Concerns about growth and pressure for central banks to intervene will continue to support short-term bonds. The behavior of the long end is more uncertain: yields could continue to rise due to inflation expectations, forced liquidations, and fears about debt sustainability; however, recession fears could exert downward pressure. Moreover, the weak 3-year bond auction in the U.S. recorded last night has intensified doubts about the safe-haven status of U.S. Treasuries, exacerbated by the loss of credibility in the country’s economic policy. We anticipate continued pressure on U.S. Treasuries,” adds the Head of Nominal Rates at Aberdeen Investments.

The Impact of Tariffs on U.S. and EU Bonds

According to Mauro Valle, Head of Fixed Income at Generali Asset Management (part of Generali Investments), over the last week, U.S. yields moved 30 basis points lower, reaching 3.9%, after Trump announced the global tariff plan and then retraced 20 basis points after the news of a 90-day suspension period.

“Real yields dropped to a low of 1.6% before returning to 2.0%; breakeven rates fell from 2.4% to 2.15%. Trump’s tariff plan impacted risk assets, and now the market is trying to assess the recession risk in the U.S. Market fears of a global recession are high and well-founded, as global trade is likely to decline significantly,” says Valle.

In his opinion, another risk factor to watch is the EU’s retaliation plan in response to U.S. tariffs: whether the EU will take a soft approach or not. “The market expects more Fed cuts, with up to 4 cuts by December, as the Fed will support the economy and employment despite the risk of inflation. But in his last speech, Powell confirmed his focus on the U.S. inflation profile. The ISM data confirmed the U.S. economy’s slowdown, and the labor report showed an improvement in non-farm payrolls but also a 4.2% unemployment rate. U.S. yields could continue to move within a range around the 4.0% level, given the high level of uncertainty and the growing term premium investors will demand for long-term U.S. yields. Considering possible Fed support, if the scenario deteriorates, the U.S. curve steepening could continue,” explains this expert.

In contrast, focusing on the European Union, Valle highlights that bund yields fell to the 2.5% level following the news of the tariffs — the level observed before the announcement of the German fiscal bazooka — and then rebounded to 2.6%. “The Eurozone scenario seems somewhat easier to interpret. Tariffs may have a moderately negative impact on EU growth but will be offset by German fiscal spending towards the end of 2025 and in 2026. Eurozone inflation is expected to continue declining in the coming months. The ECB could cut rates in upcoming meetings, bringing official rates below 2% if necessary, as the economy will be negatively affected by tariffs while inflation will likely be less sensitive to them. The market is close to fully pricing in a cut in April, and three cuts are expected before December,” comments the Head of Fixed Income at Generali AM.

Emerging Corporate Bonds and Tariffs: Beyond the Noise

We must not forget that trade policy and geopolitics have significant direct and indirect repercussions on emerging market companies. Countries like Mexico face direct consequences, though broader effects such as slowing growth, weakening risk sentiment, and emerging market currency turbulence are also evident.

For Siddharth Dahiya, Head of Emerging Market Corporate Debt, and Leo Morawiecki, Associate Investment Specialist in Fixed Income at Aberdeen Investment, credit markets have remained remarkably stable despite the rapid deterioration in risk sentiment over recent weeks. “Although emerging market credit has shown some weakness, spreads have only widened by one basis point so far in March, with a total return of -0.56%. The reaction of emerging market credit has been even milder: total returns of -0.22%, reflecting its resilience in a volatile geopolitical world,” they explain.

In this regard, they point out that local currency assets have held up against expectations of a potentially weaker U.S. dollar amid a faster and deeper rate-cutting cycle. “So far this year, the spot dollar index has weakened by 4.4%, while the Brazilian real, the Mexican peso, and the Polish zloty have posted total returns of over 3%. This should give emerging market central banks room to continue cutting official interest rates,” they note.

According to the analysis of Dahiya and Morawiecki, the greatest impact has occurred in spreads of oil and gas companies. However, they explain that this has been more due to the persistent weakness in oil prices and the intentions of the Organization of the Petroleum Exporting Countries (OPEC) to soon ease production cuts. “Although the repercussions have been limited, the tightening of financial conditions in the U.S. could lead to a rise in yield spreads globally. We are reassured by the strong initial balance sheets of emerging markets and the absence of major fiscal problems in some of the largest countries,” they conclude.

The US Dollar Loses Its Smile as Latin American Currencies Shine

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According to experts, the recent weakening of the US dollar has real consequences for investment portfolios. As investors consider whether or not to make changes in terms of currency exposure, the debate over the dollar’s behavior remains open and vibrant.

In fact, the greenback posted a slight recovery yesterday after President Trump clarified he had no intention of removing Fed Chair Jerome Powell, easing concerns over the central bank’s independence. Additionally, a more conciliatory tone toward China helped revive risk sentiment, boosting demand for US assets and reducing appetite for emerging market currencies.

Lale Akoner, Global Markets Analyst at eToro, notes that in the current context, investors seeking better currency balance might want to diversify their FX exposure. “Holding wealth in a single currency concentrates risk. Some investors are allocating to euro-, yen-, or Swiss franc-denominated assets. Others are using international funds with currency-hedged share classes to broaden their safety net and neutralize FX risk. Alignment is key: US investors anticipating continued dollar weakness tend to avoid hedging to capture foreign gains, while European or UK investors with US assets may prefer hedging to mitigate FX losses,” says Akoner.

She highlights that during Q1 2025, the depreciation of the US dollar had a significant impact on Latin American currencies, driving widespread appreciation across the region. According to analysts, this trend is tied to factors such as uncertainty surrounding US trade policy under Donald Trump’s administration and expectations of interest rate cuts by the Federal Reserve. So what’s happening with these currencies?

The Strength of the Mexican Peso

In this context, the performance of certain Latin American currencies stands out. For instance, earlier this week, the Mexican peso gained ground against the dollar, reaching multi-month highs, as investors responded to the greenback’s weakness.

“The Mexican peso has maintained a positive trend against the US dollar, trading below the 19.50 pesos per dollar zone. This appreciation has been driven by both external and internal factors, which have strengthened investor confidence in the national currency. In an uncertain global environment, the peso’s stability stands out as a sign of economic resilience and relative strength,” explains Antonio Di Giacomo, Financial Markets Analyst for LATAM at XS.

He adds that from a technical standpoint, the USD/MXN exchange rate is at a critical level. “The 19.50 mark acts as a key support, and a potential downward break is being closely watched, which could open the door for further peso appreciation. This technical outlook has become an additional factor fueling short-term positive expectations,” he notes.

However, according to Quasar Elizundia, Market Analysis Strategist at Pepperstone, the Latin currency could face headwinds. “In the US, easing fears of political interference in the Fed and renewed hopes of a trade truce between the US and China could boost the greenback.”

Elizundia points out that domestically, while Banxico’s relatively high benchmark interest rate and favorable interest rate differential continued to attract inflows, mixed data may cloud the peso’s trajectory. “Retail sales fell 1.1% year-over-year in February, a sharp reversal from the 2.7% increase in January. Although monthly growth remained marginally positive, the data confirmed a loss of household consumption momentum. This weakness coincided with the IMF’s downward revision of Mexico’s economic forecast, now expecting GDP to contract by 0.3% in 2025.”

Brazil, Chile, and Argentina: Advancing Against the Dollar

Looking at Brazil and Chile, the trend is similar. The Brazilian real appreciated by 1.01%, trading at 5.7055 per dollar, mainly strengthened by the global retreat of the dollar and expectations of interest rate cuts by the Central Bank of Brazil. Analysts add that a positive outlook for its trade balance also played a role, as rising export prices—especially commodities—have boosted foreign currency inflows. “However, the sustainability of this trend will depend on the country’s ability to address its fiscal challenges and control inflation, as well as on the global economic outlook,” they note.

Meanwhile, the Chilean peso rose 0.86%, trading at 918.80 per dollar, driven by higher copper prices—the country’s main export. As in Brazil, two other factors supported the currency: monetary policy and the dollar’s depreciation. In this regard, it’s notable that the Central Bank of Chile has maintained a restrictive monetary policy to control inflation, which has contributed to peso stability.

Finally, the appreciation of the Argentine peso reflects a different context. Following the liberalization of exchange controls, the peso showed an upward trend, trading around 1,088 pesos per dollar. According to experts, this appreciation was driven by the urgent need for local currency liquidity and by monetary policies implemented by President Javier Milei’s administration.

“The Argentine peso maintained its upward bias at the beginning of the week as the market adjusted following the recent exchange liberalization, showing an urgent need for local currency liquidity that encouraged the unwinding of dollarized positions. Traders agreed that the monetary policy implemented by ultraliberal President Javier Milei’s government is driving a sustained revaluation of the peso, approaching the central bank’s (BCRA) buying rate,” Reuters reported.

Colombian Peso: Going Against the Grain

On the flip side—quite literally—is the Colombian peso, which has weakened against the dollar and rising trade optimism. According to Elizundia from Pepperstone—a brokerage specializing in international financial and crypto markets—this midweek decline stemmed from both internal and external factors. “Locally, oil prices continued to fall amid signs that OPEC+ may further increase production. Falling oil prices directly harm Colombia’s terms of trade and fiscal outlook,” he explains.

Externally, he adds that the latest dollar rebound further weighed on the currency.

Finally, the analyst notes that looking ahead, all eyes are on next week’s interest rate decision. “After holding rates steady in the previous meeting, any rate cut could reduce the peso’s appeal and increase depreciation pressures,” Elizundia concludes.

The Dollar Loses Its Smile

According to Benoit Anne, Senior Managing Director of Strategy & Insights Group at MFS Investment Management, we are facing a new market paradigm in which the defensive characteristics of the US dollar are weakening. He notes that the DXY index has dropped to around 98.40—a level not seen since early 2022.

“The US dollar is much cheaper than it was a few months ago, but that doesn’t mean it’s historically cheap. If we look at the Fed’s broad real trade-weighted dollar index, the current level remains 17% above its 30-year average, indicating significant overvaluation. Overall, the current market environment does not seem favorable for the dollar, at least based on available information. This suggests that non-US assets could be well positioned to deliver better returns going forward,” Anne concludes.

Trump’s Tariffs Could End Up Being an Opportunity for the European ETF Industry

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The total unpredictability and the unprecedented policy shifts of the Trump administration, along with Europe’s seismic response to these, have led to a drastic reversal in investor sentiment and positioning in recent times. Experts at Xtrackers by DWS have identified several significant changes in performance and asset allocation, including that investors are moving away from U.S. equities and the Magnificent Seven toward regions previously “forgotten” and with low exposure such as, for example, Europe and China.

“There is a clear reversal in the European narrative following the elections in Germany and the change in the U.S. approach to the conflict between Russia and Ukraine. From our point of view, this makes the recent rally in Europe more than just a reversal effect. In times of high uncertainty, ETF flows seem to indicate that the market has finally heard the wake-up call for greater diversification beyond U.S. large caps,” they explain.

Chart: Relative performance versus the S&P 500 (last 12 months, total return in dollars)

U.S. equity ETFs are seeing a sharp drop in new inflows, as investors turn to European, global, and emerging market indices.

One of the main conclusions they draw is that the market inflection point could open opportunities to recalibrate portfolios, as these are experiencing a key reversal of the so-called “Trump Trade”, with a sharp drop in U.S. equities so far this year. In contrast, they point out that more attractive valuations of European equities, along with announcements of larger infrastructure and defense investments, have pushed markets upward in Europe. “This movement is supported by structural factors, such as the new uncertainties around AI and the capital expenditure (capex) investment story that comes with it, as well as the renewed fiscal momentum in Europe,” they clarify in their latest analysis.

At the same time, they believe that geopolitical tensions could make recalibrating risk exposure a priority: “For investors, this represents a window to reposition their portfolios, diversify beyond traditional winners and take advantage of evolving macroeconomic and thematic drivers. Several regions and sectors have been identified as structural laggards by investors (including Europe, China, and the world excluding the U.S.). With very low initial sentiment and a new geopolitical environment, these could become candidates for sustained recovery.”

The New Narrative: Europe’s “Whatever It Takes”

On one hand, the experts point out that a possible ceasefire between Russia and Ukraine is improving market sentiment, which contrasts with the urgency of EU members to substantially increase defense spending, with the goal of reducing their dependence on the U.S.Germany has announced plans to make major investments in infrastructure and defense, financed through a relaxation of the debt brake and a special fund of 500 billion euros. This could increase indebtedness and the public debt ratio, but at the same time boost economic growth. Other EU countries are likely to follow this path,” they note as an example.

From the firm, they expect these measures to accelerate growth, especially starting next year. Xtrackers forecasts estimate that Germany will grow 0.4% in 2025 and 1.6% in 2026. For the Eurozone as a whole, they project growth of 1% in 2025 and 1.5% in 2026. Meanwhile, the ECB has further supported European markets with interest rate cuts, making equities more attractive compared to traditional savings products and, over time, easing the interest burden for companies.

Lastly, private consumption is beginning to recover thanks to a surprisingly strong labor market and declining inflation. Additionally, macroeconomic surprise indicators have turned positive for Europe. “We believe the euro could strengthen in the short and medium term. Moreover, European stocks, especially mid-caps, which have lagged in the recent rally, could benefit from the planned spending increase,” the analysts explained, adding that Europe’s macroeconomic momentum has become a tailwind for equities so far this year, while U.S. indicators have turned downward.

“Positive economic environment, positive risk appetite, positive structural factors (the historically forecasted higher EPS should drive superior profitability over the cycle, the adjusted valuation of Europe’s SME sector compared to large caps is below the historical average), greater domestic market exposure than large-cap companies,” conclude the experts at Xtrackers.

Goldman Sachs Alternatives Launches a Private Equity Strategy That Provides Access to Goldman Sachs’ Leading Franchises

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Goldman Sachs Alternatives has announced the launch of the G-PE fund, which is part of its G-Series range of open-ended private markets funds that benefit from the firm’s 36-year track record as a leader in private investing. It is the latest fund launched under the G-Series brand.

According to the manager, G-PE is a permanent private equity strategy that provides access to Goldman Sachs’ leading private equity franchises. In this regard, the vehicle allows participation in private equity deals across a range of flagship strategies, such as buyout, growth, secondaries, and co-investment. Additionally, they add that the strategies launched under the G-Series brand have been designed to provide qualified investors worldwide with efficient access to a range of investment strategies spanning Private Equity, Infrastructure, Real Estate Credit, and Private Credit.

This launch is in line with the firm’s efforts to expand access to its $500 billion Alternatives platform for professional investors, including qualified individuals, broadening access to the return and diversification benefits of private markets. The manager indicates that the strategies are accessible through Goldman Sachs Private Wealth Management and selected third-party distributors in various markets. “The expansion of the G-Series comes at a time when both individual and institutional investors are seeking new sources of diversification into assets uncorrelated with public markets,” they state.

Following this launch, Kristin Olson, Global Head of Wealth Alternatives at Goldman Sachs, said: “As more companies choose to stay private longer and a greater proportion of economic growth occurs in private markets, investors will need to look beyond public markets. We believe that investments in private markets can help our clients with the right risk profile to build a more diversified portfolio, and we are pleased to leverage product innovation to expand their access and opportunities.”

State Street and Bridgewater Launch an ETF Based on the Strategies of Investment Guru Ray Dalio

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State Street Bridgewater ETF Ray Dalio
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Fans of Ray Dalio, founder of the hedge fund Bridgewater Associates, now have a new way to incorporate the investment guru’s strategies into their portfolios: State Street Global Advisors and Bridgewater Associates have launched the SPDR Bridgewater All Weather ETF (ALLW), a fund that brings the “all weather” strategy approach within reach of retail investors seeking resilience for their portfolios during market turbulence.

The strategy, which was developed by the hedge fund under Dalio’s leadership nearly 30 years ago, aims to provide exposure to different markets and asset classes to create a portfolio resilient to a wide range of market conditions and environments, according to the fund’s prospectus.

The portfolio allocates assets based on the fund’s view of cause-and-effect relationships, specifically how those asset classes react to changes in growth and inflation. State Street will buy and sell the fund’s investments, which may include a range of global asset classes, such as domestic and international equities, nominal and inflation-linked bonds, and commodity exposures.

The launch of the fund comes as markets face a phase of volatility due in part to concerns around tariffs and their effects on the economy and inflation. It also continues to expand State Street’s range of alternatives following the recent approval of the firm’s private credit ETF with Apollo Global Management.

This actively managed ETF has an expense ratio of 0.85% and invests based on a daily model portfolio provided by Bridgewater.

Private Capital and Liquidity? A New Approach you Should Know About

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In recent years, private capital has taken center stage in institutional portfolios due to its risk-adjusted return potential and diversification benefits. However, its defining characteristic—illiquidity—can pose a challenge for both investors and portfolio managers. In this context, securitization emerges as an innovative and effective solution to transform illiquid assets into listed, liquid, and easily accessible securities.

This article of FlexFunds explains in a clear and practical way how securitization works in the context of private capital, what benefits it offers, and how it can be implemented.

Asset securitization is simply the process of transforming any type of financial asset into a tradable security. Through this financial technique, exchange-traded products (ETPs) are created to act as investment vehicles, with the aim of providing the underlying assets with greater liquidity, flexibility, and reach.

Traditionally, this process has been associated with the banking or mortgage sectors. However, an increasing number of private equity fund managers are exploring this approach to bring more flexibility to their portfolios, monetize assets without selling them directly, and attract a broader investor base.

Private equity funds are investment instruments designed to support the growth of non-listed companies. These vehicles are established through financial intermediaries who raise capital from investors and direct it toward various companies or projects with significant growth potential.

These funds typically have long investment horizons (8 to 10 years or more) and are closed-end structures, meaning that investors cannot enter or exit the fund during its lifespan. This can limit access for certain investors who require greater liquidity or face regulatory constraints.

Some of the most common types of private capital investments include:

Through securitization, it’s possible to pool interests in a private equity fund and issue securities that represent rights to the future cash flows of those assets. These securities can be structured in different risk and return tranches, making them adaptable to various investor profiles.

That said, implementing a securitization structure requires expertise in financial structuring, international regulation, and access to distribution platforms. This is where FlexFunds, a company specialized in creating efficient investment vehicles, can play a key role.

FlexFunds offers investment vehicles that enable private capital managers to:

1.- Increase liquidity: Securitization turns illiquid assets into listed products with ISIN codes, tradable through platforms such as Euroclear and Clearstream, and custodial in existing brokerage accounts.

2.- Diversify risk: By distributing the risks associated with the underlying assets among multiple investors, securitization helps reduce exposure for any individual investor—especially relevant in times of market volatility.

3.- Access international capital: Securitization facilitates access to international capital markets, allowing managers to attract investment from a global investor base.

4.- Protect the assets within the structure: Since the issuance is executed through a Special Purpose Vehicle (SPV), the underlying assets are isolated from any credit risk that may affect the manager and, therefore, the investor.

Like any financial tool, securitization comes with challenges that must be managed, including:

  • Accurate valuation of private assets
  • Transparency and disclosure to investors
  • Compliance with regulations across multiple jurisdictions

Securitization applied to private capital is a growing trend. It offers a viable solution to address the sector’s inherent illiquidity, expand the investor universe, and increase capital market distribution.

If you’re looking to expand the distribution of your private equity fund, securitization may be the tool that helps you reach a wider investor base. FlexFunds’ solutions can repackage this type of instrument in less than half the time and cost of any other alternative on the market.

For more information, please contact our experts at contact@flexfunds.com