(Source: Merlea Macro Matters)

Summary

Global Growth Outlook Under Pressure – Is the Era of U.S. Exceptionalism Ending?

As Donald Trump’s new wave of tariffs takes effect, the global macroeconomic landscape is entering a phase of heightened fragility. These trade restrictions, aimed ostensibly at reducing deficits and protecting domestic industries, are arriving at a time when global supply chains remain vulnerable and geopolitical tensions are escalating.

Nearly half of U.S. imports come from Canada, China, and Mexico. New tariffs may cut imports by 15% and raise $100 billion annually, but could disrupt supply chains, raise costs, and cut jobs. Still, trade is just 25% of U.S. GDP, and imports are broadly sourced globally.

The result is a drag on global trade volumes, renewed cost pressures for producers, and rising uncertainty for investors—all of which pose downside risks to global growth forecasts.

Meanwhile, financial markets are grappling with a sharp repricing of risk. U.S. Treasury yields have surged above 5% across several maturities, driven by persistent fiscal deficits, accelerating debt issuance, and growing investor scepticism around Washington’s long-term fiscal discipline. This bond market sell-off has reverberated across global fixed income and equity markets, tightening financial conditions even as central banks pivot toward rate cuts to stabilise slowing domestic economies.

Despite the Fed signalling a dovish turn, the U.S. dollar has weakened as markets price in a more accommodative policy path and the growing possibility of stagflationary pressures. A weaker dollar is traditionally supportive of risk assets and emerging markets, yet the current environment—marked by high U.S. yields and fiscal stress—is producing a more cautious investor response. Equity markets globally have come under pressure, with developed market indices reflecting rotation away from growth, toward defensives, while emerging markets remain constrained by dollar volatility and capital outflows.

Notably, Japan’s bond yields are also rising, a reflection of both imported inflationary pressure and the Bank of Japan’s tentative steps away from ultra-loose monetary policy. This represents a structural shift for global yield differentials and further complicates capital allocation decisions for global investors.

With U.S. economic outperformance—buoyed for years by tech dominance, strong consumer demand, and deep capital markets—now facing headwinds from rising debt service costs, policy fragmentation, and trade isolationism, a key question emerges: Is the era of American exceptionalism coming to an end?

Bonds

Global Bond Yields Climb Despite Rate Cuts, Forcing Governments to Confront Mounting Debt

The confluence of rising bond yields, persistent fiscal deficits, and slowing growth may signal the end of the low-rate era that defined the post-2008 investment environment. Markets are waking up to the reality that fiscal dominance—not just monetary policy—will shape the investment regime going forward. Economists believe Investors need to prepare for structurally higher real yields and more volatility across all asset classes.

Global bond yields are rising across the curve, defying the broader trend of interest rate cuts by central banks responding to slowing economies and receding inflation. The divergence highlights mounting investor concern over government debt levels and fiscal sustainability in the face of persistent borrowing.

In the United States, the 10-year Treasury yield has surged above 4.7%, even as the Federal Reserve has begun easing policy to cushion a cooling economy. Similar trends are playing out in Europe, where benchmark German Bund yields have risen, and in the UK, where the Bank of England’s rate cuts have not stopped gilt yields from climbing.

This anomaly signals that bond markets are beginning to price in long-term fiscal pressures as investors are becoming more cautious about sovereign debt as deficits widen and debt-to-GDP ratios climb. Higher yields reflect the growing premium demanded to hold government bonds in an era of fiscal strain.

This shift comes as many advanced economies face rising interest bills. According to the International Monetary Fund, the U.S., U.K., and several eurozone countries are set to spend an increasing share of government revenue on debt servicing. In the U.S. alone, interest payments on federal debt are projected to surpass defence spending by 2026.

Japan remains an outlier. While inflation falls elsewhere, Japan’s is rising, prompting speculation about an eventual end to its ultra-loose monetary policy. Yields remain low but are under upward pressure.

Governments may soon be forced to confront debt costs. If yields stay elevated, they may have to cut spending, raise taxes, or adopt structural reforms to restore confidence.

Rising yields are also challenging equity markets. Higher discount rates compress valuations, especially for growth and tech stocks. Investors are rotating toward sectors with stronger cash flows—such as energy, financials, and industrials.

As bonds offer better risk-adjusted returns, capital is shifting from equities to fixed income—especially among retirees and income-focused investors seeking yield without equity risk.

For now, bond markets are flashing a warning: even with central bank support, the era of low-cost government borrowing may be nearing its end.

Listed Property

A-REITs: Stable Income and Value in a Shifting Rate Environment

With central banks globally moving toward interest rate cuts—including expectations of a U.S. Federal Reserve cut by September—Australian Real Estate Investment Trusts (A-REITs) are regaining attention as a compelling investment option. Historically, REITs tend to perform well in falling rate environments, benefiting from lower borrowing costs and increasing investor appetite for yield-oriented assets.

As interest rates fall, traditional income sources such as term deposits and government bonds become less attractive. In contrast, A-REITs offer relatively stable, property-backed income streams, making them particularly appealing for investors seeking consistent cash flow.

While selectivity remains essential due to valuations and sub-sector variability, office and retail REITs currently present some of the most attractive opportunities. Office occupancy rates have begun to stabilise as businesses reduce pandemic-era flexible work arrangements, supported by strong migration trends. Meanwhile, retail REITs are experiencing early signs of a sales rebound, which is lifting net operating income across the sector.

Many A-REITs are trading at meaningful discounts to their net tangible assets, offering potential upside for value-conscious investors. Office and retail sub-sectors stand out as undervalued relative to fundamentals.

While Goodman Group (GMG)—Australia’s largest industrial REIT—has delivered impressive 12-month share price growth of over 70% thanks to expansion in its data centre pipeline, its structure differs from typical REITs. GMG generates just 23% of cashflows from rent, functioning more as a developer and fund manager. As a result, its dividend yield remains low at just 0.86%.

This disproportionately affects the broader A-REIT index, where GMG now comprises over 40%. Following a recent $4 billion capital raise and subsequent share price decline, GMG dragged the entire S&P/ASX 200 A-REIT Index down by 6.38%—a move that obscures broader sector performance.

Importantly, this index decline does not reflect the underlying strength in other A-REIT segments. Low supply and improving fundamentals in office, retail, and residential property continue to support performance. Sentiment toward the office sector is improving as more employers and government bodies push for return-to-office policies. In the latest earnings season, more than half of A-REITs exceeded market expectations.

Movements have been positive for income metrics, valuations have stabilised, with smaller movements in cap rates and the sector is trading at a discount to NTA, with potential for M&A activity.

With Australia’s recent GDP data suggesting only mild economic growth, investors are increasingly positioning for what comes next. Whether the economy slows further or begins a recovery, A-REITs are well placed. Historically, A-REITs have outperformed during both falling rate environments and early recovery stages—highlighted by strong performances in 2011–12, 2014–15, 2018, and 2021.

Australian Equities

Australia’s economy has remained relatively stable, but global uncertainty—sparked by President Trump’s new tariffs in early April—has created fresh challenges. Although share markets have calmed, attention is now on the broader economic impact of these tariffs and how they may affect global growth, including here in Australia.

The US government temporarily paused some tariff increases for 90 days, but several major ones remain—like a 10% base rate and a 25% tariff on steel and aluminium. Combined with weaker US economic data and tighter financial conditions, the outlook for global growth is softer, with unresolved US-China trade tensions adding more uncertainty. Australia is somewhat insulated thanks to limited direct trade with the US and solid economic fundamentals. However, if the US-China trade war drags on, the knock-on effects to China and the rest of Asia would eventually impact us. A key factor now is how China responds—another big infrastructure stimulus there could help cushion Australia from the worst of the impact.

Here at home, the Reserve Bank of Australia (RBA) has cut interest rates again. At its May meeting, the cash rate was lowered by 0.25% to 3.85%, following an earlier cut in February. This was widely expected, with most economists forecasting the move. The RBA now meets every six weeks instead of monthly. In its statement, the RBA said inflation has eased and is now back in its 2–3% target range. Employment remains strong, but household spending has been slightly weaker than expected. The RBA also noted that the global economic outlook has deteriorated, and that this would weigh on Australian growth and inflation going forward.

As a result, the RBA downgraded its GDP growth forecast for 2025 from 2.4% to 2.1%, and slightly increased its unemployment expectations. The cash rate is still considered “restrictive”—meaning it’s likely still holding the economy back a little. The RBA now has more room to cut rates further if needed.

Markets are pricing in another two rate cuts this year, with the cash rate expected to bottom out around 3.1% to 3.35%. We expect cuts of 0.25% in both August and November. If that happens, it would mean a total easing of 1% across 2025. The current bond market outlook supports staying overweight in fixed income, with 10-year government bond yields at 4.4%.

These rate cuts should help support the economy, and historically, rate cuts have been positive for Australian shares. Since 1995, the ASX has gained an average of 8% in the year following the first rate cut. However, global uncertainty could make the ride bumpier this time. In the past year, Australian shares have returned over 10%, even with little earnings growth—meaning valuations are getting stretched.

Lower interest rates also tend to support house prices. But given housing affordability is already poor and prices are up 15% over the past two years, any gains over the next 12 months are likely to be modest. Commercial property offers more value, but good asset selection is key.

All up, while global risks remain high, ongoing RBA rate cuts and a still-resilient local economy provide reasons for cautious optimism across shares, bonds, and property.

America – USD Outlook and Rising Stagflation Risk: A Growing Concern

The House of Representatives has narrowly passed the Trump Administration’s tax cut and spending package, a move that is set to significantly widen the U.S. federal deficit. The most notable headline was the approval of these Republican-led tax cuts, which are projected to add $3.8 trillion to the national debt over the next decade, pushing it well beyond the current $36.2 trillion. The true cost could be even higher, especially if interest expenses spiral upward due to rising bond yields.

Despite Republican claims, tax cuts won’t pay for themselves. Nonpartisan experts warn debt will soar. Real fiscal responsibility means honest math—not promises that ignore history and balloon the deficit further.

These fiscal developments are coinciding with mounting inflationary pressures, exacerbated by tariffs that are already weighing heavily on the bond market. Together, they raise the spectre of stagflation: a mix of slow growth, rising prices, and persistent budget imbalances.

Economic data released mid may added some nuance to the macro picture. Business activity showed surprising strength in May, with the private sector regaining momentum amid a temporary easing in trade tensions. Initial jobless claims fell to a four-week low, reflecting a still-resilient labour market. However, the housing sector flashed warning signs, as existing home sales declined by -0.5% MoM—the weakest pace in seven months. The most eye-catching data came from the PMI surveys. The Flash Manufacturing PMI rose to 52.3, its highest reading in three months and the strongest since mid-2022. This improvement was driven by a sharp rebound in production and the biggest surge in new orders in 15 months. However, the jump was largely inventory-driven, as companies stockpiled ahead of expected tariff impacts. Supply chains are showing strain, with delays at their worst in more than two and a half years.

Despite robust headline numbers, the underlying dynamics raise red flags. Manufacturers cut jobs for the second consecutive month, and inflationary pressures intensified. Selling prices posted their largest monthly increase since late 2022, and input costs rose at their fastest pace since August 2022.

The services sector also surprised, with the PMI climbing to 52.3 as domestic demand held firm. Yet, a record collapse in foreign demand (outside of the pandemic years) highlights the impact of tariff uncertainty and erratic policy signals. Even with rising orders, service providers shed jobs for the second time in four months. Labor costs are climbing, driving output price inflation to a two-year high. The USD remains supported in the near term by resilient economic data and comparatively higher interest rates. However, the longer-term outlook is more clouded. Ballooning deficits, sticky inflation, and rising stagflation risks could eventually undermine confidence in the dollar—especially if foreign buyers begin demanding higher yields to hold U.S. debt.

As fiscal policy continues to fuel demand while supply-side constraints linger, inflation is likely to stay elevated. The Fed faces a difficult balancing act: hike further and risk recession or hold steady and risk inflation expectations becoming unanchored. Either path could generate volatility for the dollar and broader financial markets.

The U.S. equity market has remained resilient through the first half of 2025, supported by strong tech earnings, steady consumer demand, and growing optimism around AI and automation. The S&P 500 continues to trend higher, although valuations are now elevated and future gains may be harder to achieve. While earnings have held up and the labour market remains stable, risks are rising. Stagflation concerns are growing as inflation remains persistent despite signs of slowing growth.

Interest rates are likely to stay higher for longer, and widening fiscal deficits are adding pressure to the bond market and broader investor sentiment.

Europe – EU Economic Outlook: Resilience Amid Persistent Challenges

The European Union is facing economic headwinds. According to the European Commission’s Spring 2025 Forecast, real GDP growth is projected at just 1.1% this year, rising slightly to 1.5% in 2026. This marks a downgrade from previous forecasts, with GDP expected to be 0.7 percentage points lower than projected last autumn. Excluding the post-pandemic rebound of 2022, the EU economy is set to operate below potential for nearly seven years. However, this underestimates the impact of recent global shocks—pandemic disruptions, energy price surges, geopolitical tensions, and inflation—which have hit Europe harder than other advanced economies. Despite this, the EU has shown resilience, supported by coordinated policy responses.

The April 2 tariff announcements triggered more than a standard trade shock. They introduced heightened uncertainty and tighter financial conditions, weighing on investment and trade. While the direct impact on growth is modest, the broader effects are more severe. Investors revised expectations for earnings and global growth, leading to asset price declines and deleveraging. Though markets have partially recovered, confidence remains fragile.

EU exports are now forecast to grow just 0.7% in 2025 and 2.1% in 2026—2.5 percentage points below earlier projections. Goods exports are expected to contract in 2025, while services remain more resilient. Firms are hesitant to enter new markets amid uncertainty, and tighter credit conditions are limiting export financing. Imports are also revised downward, reflecting weaker trade dynamics.

Investment is under pressure. After a 2% contraction in 2024, capital expenditure is expected to grow modestly—1.5% in 2025 and 2.4% in 2026. Equipment investment is particularly weak, while infrastructure remains stable, supported by EU funding. Residential construction is expected to rebound, and R&D spending continues to grow, signalling firms’ commitment to long-term competitiveness.

Despite subdued growth, the labour market remains strong. Employment rose in 2024 and is projected to increase by another 1% through 2026, adding 2 million jobs. The unemployment rate is forecast to fall to a historic low of 5.7%. Wage growth remains robust, with real wages expected to fully recover by the end of 2025.

Manufacturing and services also reported different inflation trends. While services input prices were up sharply again.

Overall, input cost inflation measured across both sectors consequently edged lower to the weakest since last November. Disinflation is gaining momentum. Energy prices have dropped and are expected to remain low. Increased global competition and a stronger euro are reducing import costs. However, inflation in services and food remains persistent. Headline inflation is projected to fall from 2.4% in 2024 to 1.7% in 2026.

Private consumption is forecast to grow by 1.5% in 2025, with a slight uptick in 2026. However, consumer sentiment remains cautious, and the household saving rate is expected to decline only gradually.

Risks remain high. Renewed trade tensions could depress demand and reignite inflation. Financial vulnerabilities could resurface if asset markets correct sharply. Markets expect further monetary easing, with ECB rates likely to fall to 1.75%–2.25% by 2026. Fiscal policy is expected to remain neutral, with deficits around 3.3% of GDP. To unlock its full potential, the EU must better connect savings with investment. Advancing the Saving and Investment Union, reducing market fragmentation, and supporting start-up scale-ups are essential for long-term growth.

United Kingdom – UK Inflation Rises Sharply, Complicating Rate Cut Plans

UK inflation unexpectedly rose to 3.5% in April 2025, up from 2.6% in March, according to the Office for National Statistics (ONS). While the increase matched consensus forecasts, it surprised many Britons who had grown accustomed to falling inflation. The rise presents a challenge for the Bank of England (BoE), which had just begun cutting interest rates and signalled further reductions this year.

The primary driver was energy prices, which surged following Ofgem’s April adjustment to the energy price cap. For a typical household, this meant an annual increase of £111, bringing average dual-fuel bills to £1,849. Electricity and gas prices rose 2.9% and 7.5% month-on-month, respectively, reversing sharp declines seen a year earlier.

Beyond energy, other costs also surged. Water and sewerage prices jumped 26.1%—the largest increase since at least 1988. Transport costs rose 3.3% year-on-year, driven by a rise in vehicle excise duty (VED), which now applies to electric vehicles and has doubled for many petrol and diesel cars. Owner-occupiers’ housing costs rose 6.9%, slightly down from 7.2% in March, offering only a minor offset to broader inflationary pressures.

The inflation spike complicates the BoE’s strategy. At its May 8 policy meeting, the Bank projected inflation would peak at 3.7% in September before easing. April’s data suggests inflation is approaching that peak faster than expected, raising questions about the timing of the recent rate cut.

The BoE’s Monetary Policy Committee (MPC) now faces a dilemma: continue with planned rate cuts or pause to reassess. While some analysts argue the Bank still has room to manoeuvre—UK rates remain 200 basis points above those in the eurozone—others caution that further cuts could undermine inflation control.

Market reactions were mixed. UK stocks dipped initially but recovered, with the FTSE 100 ending flat. Sterling briefly rose to $1.34 before retreating. Gilt yields climbed, with the 10-year yield rising 5 basis points to 4.75%, reflecting shifting expectations around future rate cuts. Markets now price in two more cuts this year, in August and November, but that outlook may change if inflation remains sticky.

The inflation surprise and its impact on interest rate expectations have direct implications for UK equities. Higher inflation and rising bond yields typically weigh on stock valuations, especially for rate-sensitive sectors like real estate and utilities. However, the FTSE 100’s muted reaction suggests investors are not yet panicking. Many large-cap UK firms are global and benefit from a weaker pound, which can cushion domestic inflation shocks.

Still, persistent inflation could delay rate cuts, keeping borrowing costs elevated and dampening consumer and business spending. This could weigh on earnings growth, particularly for domestically focused firms. Investors will be closely watching upcoming inflation prints and BoE commentary for clues on the path ahead.

Japan – Rising Japanese Bond Yields Threaten U.S. Treasury Demand—and Signal a Shift at Home

Japanese institutions have long been key buyers of U.S. Treasuries, but a sharp rise in Japanese government bond (JGB) yields is raising the risk of capital repatriation. With global demand for U.S. debt already under pressure, a shift in Japanese investment flows could add fresh volatility to U.S. bond markets and the dollar.

As of Q1 2025, Japanese entities—including official reserves—hold around $1.13 trillion in U.S. Treasuries, making them the largest foreign holders. But the yield gap between U.S. and Japanese bonds is narrowing fast. The 30-year JGB yield recently hit a record 3.185%, while the 40-year yield climbed to 3.635%. This surge reflects the Bank of Japan’s (BoJ) more flexible approach to yield curve control amid rising domestic inflation.

Global bond markets face significant shifts as Japanese and US Treasury yields rise sharply, indicating inflation and fiscal pressures. Japan’s 30-year yield hits a record high, while Moody’s downgrade of US debt raises concerns over its $36 trillion liabilities, impacting global dynamics.

According to Macquarie analysts, “There could be a trigger point where Japan’s investors suddenly repatriate their capital from the U.S. and into Japan.” As JGBs become more attractive, the incentive to keep capital abroad diminishes. This shift is already showing up in markets: a recent U.S. 20-year bond auction saw weak foreign demand, pushing yields to a two-year high and weighing on the dollar.

While other global bond markets—like UK gilts and German bunds—are also under pressure, the U.S. is particularly exposed due to years of foreign investor overweight in U.S. assets. If Japanese investors begin reallocating en masse, it could drive U.S. yields higher and weaken the dollar further.

The BoJ is unlikely to counter this trend with rate cuts or a return to strict yield curve control. Instead, it is expected to maintain a flexible stance, stepping in only if yields rise too quickly. This signals a broader shift in Japan’s monetary policy—one that could have lasting effects on both global and domestic markets.

For Japan, rising bond yields mark a turning point. After decades of ultra-low interest rates, higher yields offer domestic investors better returns at home. This could strengthen the yen over time, especially if capital flows back from the U.S. and other markets.

However, the impact on Japanese consumers is mixed. On one hand, a stronger yen could reduce import costs, easing inflationary pressures on essentials like energy and food.

On the other hand, rising yields could lead to higher borrowing costs for households and businesses, potentially dampening consumption and investment.

Mortgage rates and consumer loans may edge higher, which could weigh on Japan’s fragile consumption recovery. At the same time, savers—especially retirees—may benefit from improved returns on fixed-income investments, potentially boosting household income.

The shift in Japanese capital flows could also ripple through global markets. For the U.S., reduced demand for Treasuries may complicate efforts to manage debt and inflation. For the UK, rising U.S. yields could draw capital away from gilts, pushing UK yields higher and tightening financial conditions.

In short, Japan’s bond market awakening is more than a domestic story—it’s a global one. Investors and policymakers alike will be watching closely for signs that the tide of Japanese capital is turning.

China – US-China Trade War Eases Amid Domestic Pressures

The prolonged trade conflict between the United States and China has entered a new phase, with both nations agreeing to reduce reciprocal tariffs significantly. This development marks a notable shift from former President Donald Trump’s earlier hardline approach, which had escalated tariffs on Chinese imports to a peak of 145%. Under the new agreement, those tariffs will be reduced to 30%.

Trump, who had previously asserted that the U.S. held a dominant position in global trade negotiations, has been compelled to adjust course. His earlier claims that the U.S. could operate independently of international trade have proven untenable, particularly as the domestic consequences of the tariff regime became increasingly apparent.

Initially, American businesses mitigated the impact by drawing on pre-tariff inventories. However, as those supplies diminished, concerns over rising consumer prices and potential product shortages intensified. With midterm elections approaching and public dissatisfaction growing, the administration faced mounting political and economic pressure to ease trade tensions.

The urgency was further compounded by the expiration of pandemic-era government stimulus programs, which had temporarily cushioned the economic impact for households. Without that support, the financial burden of tariffs became more visible and politically sensitive.

Despite Trump’s framing of the agreement as a strategic win, the outcome appears asymmetrical. China has agreed to reduce its retaliatory tariffs from 125% to 10%—tariffs that were originally imposed in response to U.S. actions. Treasury Secretary Scott Bessent adopted a more measured tone, emphasizing that “neither side wanted a decoupling,” highlighting a mutual interest in economic stability.

Beyond tariff adjustments, China has not made substantial concessions. Instead, it has accelerated efforts to diversify its trade portfolio, securing new agreements across Asia, Africa, and Latin America. These initiatives reflect a broader strategy to reduce dependence on the U.S. market and enhance economic resilience amid geopolitical uncertainty.

The diplomatic optics surrounding the negotiations have also drawn attention. While Trump claimed that China was eager to reach a deal, Chinese officials clarified that the latest round of talks in Switzerland was initiated by the U.S. “The meeting is being held at the request of the U.S. side,” stated Chinese Foreign Ministry spokesperson Lin Jian.

Although Trump downplayed the significance of who initiated the talks, the broader context suggests that China was confident in its ability to withstand economic pressure. Unlike the U.S., where public opinion and electoral cycles heavily influence policy, China’s centralised governance structure allows for longer-term strategic planning.

Financial markets responded positively to the announcement. Investors interpreted the tariff reductions as a signal that the U.S. may be moving away from a rigid protectionist stance. This follows a previous 90-day suspension of tariffs on all countries except China—now extended to include Beijing. However, some trade barriers remain. A 10% baseline tariff is still in place, along with a 20% punitive tariff targeting China’s alleged involvement in the fentanyl trade.

Emerging Markets – A Silver Lining

The easing of trade tensions, coupled with a weakening U.S. dollar, has provided a boost to emerging markets. As the dollar softens, capital flows into these economies have increased, easing debt burdens and improving trade competitiveness. Currencies in countries such as Brazil, India, and Indonesia have strengthened, while commodity-exporting nations are benefiting from improved terms of trade.

Lower U.S. interest rate expectations—partly driven by the economic slowdown linked to the trade war—have also made emerging market assets more attractive to global investors. This shift is helping to stabilise financial conditions in regions that had previously been vulnerable to dollar strength and capital flight. The easing of U.S.-China trade tensions reflects a complex interplay of domestic political pressures, economic pragmatism, and evolving global alliances. As China strengthens alternative trade relationships and the U.S. reassesses its trade strategy, emerging markets are beginning to benefit from improved capital flows and a more favourable currency environment.

Commodities

The outlook for resource commodities is increasingly positive given the interplay of several key macroeconomic and geopolitical shifts. A weakening U.S. dollar, easing of trade tariffs, and structural trends like deglobalisation and decarbonisation are all shaping future demand and pricing dynamics.

A declining USD typically boosts commodity prices, as most are priced in dollars. When the dollar falls, it makes commodities cheaper for non-U.S. buyers, increasing global demand. This supportive currency environment is already benefiting metals like copper and aluminium and could further lift energy and agricultural commodities if the trend continues.

Adding to the optimism is a potential softening of tariffs introduced under former President Trump. Easing trade restrictions, particularly between the U.S. and China, could reinvigorate global trade flows. This is particularly bullish for bulk commodities such as iron ore and coal, which are closely tied to industrial output and infrastructure development, especially in emerging markets.

However, the broader landscape is also being reshaped by long-term trends. Deglobalisation, characterised by nearshoring and supply chain reconfiguration, may reduce efficiency in the short term but is likely to spur new investment in domestic resource production. This could benefit resource-exporting countries that maintain strong trade ties and reliable governance.

Decarbonisation remains the most profound structural driver of future commodity demand. The global transition to cleaner energy is fuelling a surge in demand for critical minerals such as lithium, cobalt, nickel, and rare earths—key inputs for batteries, electric vehicles, and renewable energy infrastructure. Conversely, traditional fossil fuels may see long-term decline, though short- to medium-term demand remains supported by emerging market growth and geopolitical instability.

Overall, the commodity outlook is robust, especially for metals tied to energy transition. While challenges from geopolitics and shifting trade patterns remain, the confluence of a weak dollar, trade easing, and structural demand shifts point to sustained strength in resource markets.