(Source: Merlea Macro Matters)

Summary

Rate Cuts Begin as Inflation Eases, Dollar Slides, and Gold Surges 

The global economy is entering a new phase. Inflation is cooling, central banks are pivoting, and markets are adjusting. On September 17, the Federal Reserve cut interest rates for the first time this year, lowering the benchmark to 4.00–4.25%. With inflation moderating to 2.9% and job growth slowing, the Fed is shifting focus from inflation control to growth support.

Markets reacted swiftly. Equities rallied, bond yields fell, and the U.S. dollar continued its steep decline, down over 10% year-to-date. The dollar’s weakness is driven by lower rate expectations, rising debt concerns, and a global move away from USD-denominated trade. This has fuelled a surge in gold, which broke past $3,600/oz and is now approaching $4,000. Investors are turning to gold as a hedge against currency volatility and geopolitical risk.

Policy changes are reshaping labour and trade dynamics. The U.S. government’s decision to impose a $100,000 annual fee on H-1B visa petitions has shocked the tech and healthcare sectors. The move is expected to reduce foreign hiring, slow innovation, and push companies to offshore talent. Economists warn of billions in lost wages and tax revenue, with long-term consequences for U.S. competitiveness.

Tariffs imposed earlier this year are beginning to show delayed effects. While inflation hasn’t spiked yet, the impact is surfacing as inventories deplete, and new shipments arrive under higher costs. These pressures could complicate central banks’ easing cycles if inflation resurges in Q4.

Stagflation Risks Rise

Stagflation—characterized by high inflation and stagnant growth—is emerging in several economies. The U.S. shows early signs, with weak job creation and persistent inflation. Europe is vulnerable, especially Germany and the UK. Argentina and Turkey are experiencing full-blown stagflation, with double-digit inflation and contracting GDP. Central banks face a dilemma: tighten policy and risk recession, or ease and risk reigniting inflation.

Emerging Markets Outperform – Amid the turbulence, emerging markets are quietly outperforming. The MSCI EM Index is up over 20% year-to-date, driven by strong capital inflows, currency appreciation, and rising commodity exports. Countries such as India, Brazil, and Indonesia are benefiting from the decline of the dollar and the shifting of supply chains. With resilient domestic demand and accelerating AI adoption, EMs are increasingly viewed as growth engines in a slowing global economy. 

Bonds

Long-Term Yields Stay Elevated Despite Rate Cuts 

Global bond markets are sending mixed signals. Central banks, led by the Federal Reserve, have begun easing policy in response to slowing growth and moderating inflation. The Fed’s September rate cut brought the benchmark rate down to 4.00–4.25%, and short-term yields have followed suit. Yet, long-term yields—particularly the 30-year Treasury—remain stubbornly high, defying expectations of a broad-based decline across the curve.

This divergence reflects deeper structural concerns. While short-term rates respond directly to central bank policy, long-term yields are shaped by market expectations around inflation, fiscal sustainability, and future debt issuance. Investors are demanding higher compensation to hold long-duration bonds, especially as inflation remains above target and governments ramp up borrowing to fund deficits.

The U.S. Treasury, for example, has increased long-term debt issuance, and with demand not keeping pace, yields have risen. This supply-demand imbalance is compounded by concerns over fiscal discipline. With debt-to-GDP ratios climbing, markets are pricing in greater risk, pushing up term premia. Even as central banks ease, the bond market is signalling caution about the long-term outlook

Yield curve steepened post-rate cut as long-term Treasury yields rose. Inflation fears and debt supply pressures kept 30-year yields elevated, despite falling short-term rates driven by Fed policy expectations.

The result is a steepening yield curve. Short-term yields are falling, but long-term rates remain elevated—a classic “bull steepening” pattern. This suggests markets expect slower growth ahead but persistent inflation risks. It also reflects scepticism about how quickly central banks can return to ultra-low-rate environments.

For governments, elevated long-term yields pose real challenges. Borrowing costs for 10-to-30-year bonds are significantly higher, increasing debt servicing burdens. This limits fiscal flexibility, especially in countries already facing structural deficits. Rising interest payments crowd out spending on infrastructure, healthcare, and climate initiatives, and may force governments to reconsider future stimulus plans.

The disconnect between short-term easing and long-term yield resilience underscores the complexity of today’s macro environment. Rate cuts may offer short-term relief, but they don’t erase concerns about inflation persistence or fiscal sustainability. Investors are watching closely, and the bond market remains a critical barometer of long-term confidence.

As Q4 begins, the yield curve will be a key signal to monitor. If long-term rates remain elevated, it could constrain policy 

options and reshape investment strategies across asset classes.

Divergence suggests that markets continue to factor in concerns related to inflation, fiscal sustainability, and geopolitical developments. The recent increases in long-term yields in both the United States and Japan point to evolving investor expectations and highlight the importance of maintaining a balanced approach to risk management within fixed-income portfolios.

Listed Property

New development activity remains constrained 

Australian Real Estate Investment Trusts (A-REITs) are entering the final quarter of 2025 with renewed momentum. After a challenging period marked by rising interest rates and valuation pressures, the sector is now benefiting from stabilising yields, narrowing NTA discounts, and improving sentiment. 

Capitalisation rates are beginning to normalise, particularly in industrial and retail assets, as interest rate pressures ease. This has helped narrow the gap between listed REIT prices and their underlying asset values. The average NAV discount across the sector improved from -17.85% to -12.70% in August, with several REITs now trading close to or above their NTA.

Premium office space in Australia’s CBDs continues to attract strong demand, while secondary-grade buildings face negative absorption. Tenants are prioritising quality, driving leasing momentum in Premium and A Grade assets.

However, new development activity remains constrained. Replacement costs have surged due to persistent labour shortages and elevated material prices. Skilled trades remain in short supply, driving up wages and extending project timelines. Supply chain disruptions continue to affect material availability, and high financing costs are discouraging speculative builds. These pressures are slowing the pipeline of new commercial and residential projects, which in turn supports rental growth and occupancy in existing assets.

Among the major players, Goodman Group (ASX: GMG) continues to lead the pack with a $13 billion development pipeline focused on logistics and data centres. Scentre Group (ASX: SCG), which owns and operates Westfield shopping centres across Australia and New Zealand, is seeing strong re-leasing spreads and resilient foot traffic. Charter Hall Group (ASX: CHC) maintains a diversified portfolio across office, industrial, and social infrastructure assets, and is actively recycling capital into higher-yielding opportunities.

Global REITs Outlook

Globally, listed REITs are showing signs of recovery as monetary policy pivots take hold. In the U.S., REITs have rebounded following the Federal Reserve’s rate cut, with retail and industrial segments leading gains. European REITs are benefiting from stabilising inflation and improving consumer sentiment, particularly in urban retail and logistics assets. Global REIT ETFs have seen renewed inflows, driven by investor appetite for high dividend yields and inflation-linked rental income. With leverage levels generally low and debt mostly fixed, global REITs are well-positioned to benefit from the next phase of the monetary cycle. 

Sector rotation will reduce risk 

As we enter the final quarter of 2025, the Australian equity market continues to show resilience despite elevated valuations and macroeconomic uncertainties. The ASX 200 remains near its highs, closing at 8,749.6 in late September, just 3.4% below its 52-week peak of 9,054.5. Year-on-year, the index is up over 8%, supported by strength in gold miners, technology, and resource stocks.

Australia’s inflation data for August revealed a headline CPI of 3%, up from 2.8% in July, marking the highest annual rate since mid-2024. The trimmed mean, which the Reserve Bank of Australia (RBA) uses to gauge underlying inflation, eased slightly to 2.6%, still above the midpoint of the RBA’s 2–3% target band. This mixed picture has led the RBA to hold rates steady at 3.60% in September, but a 25-basis point cut in November remains a strong possibility, with major banks forecasting a gradual easing cycle through 2026.

Market risks persist. Elevated valuations, particularly among top ASX 200 constituents, leave little room for earnings disappointments. Inflationary pressures from energy costs and global uncertainties —such as geopolitical tensions and supply chain disruptions—could trigger volatility. Investors should remain vigilant for signs of sentiment shifts, earnings downgrades, and sector-specific headwinds.

Sector rotation offers a strategic approach to navigating these risks while uncovering value. As the business cycle matures, rotating out of overvalued defensive sectors and into cyclical areas with pricing power and growth tailwinds can enhance portfolio resilience. For example, resource stocks like South32, Lynas Rare Earths, and Mineral Resources are well-positioned to benefit from global infrastructure demand and decarbonisation trends. Healthcare firms such as CSL and ResMed offer defensive growth, while technology names like NEXTDC and WiseTech Global continue to gain from AI adoption and automation.

Long-term tailwinds remain compelling. China’s new dam project is expected to drive demand for Australian materials, particularly copper and aluminium. Domestically, government infrastructure spending and the energy transition are boosting demand for commodities and clean technologies. Uranium producers like Paladin Energy and gold miners such as Northern Star Resources are also benefiting from global energy and inflation dynamics.

In this environment, investors should focus on fundamentals, maintain diversification, and consider exposure to sectors aligned with structural growth. Companies with strong cash flows, ethical credentials, and pricing power will be best positioned to weather any correction and recover in the long term.

America 

U.S. Market Outlook – Q4 2025 Navigating Elevated Risks Amid Policy Shifts 

The U.S. economy remains resilient, but signs of strain are becoming harder to ignore. Revised GDP forecasts now point to growth of just 1.6% for the year, down from earlier projections of 2.1%. Labor market data is softening, with fewer job openings and shorter average workweeks, suggesting that demand is beginning to wane. Inflation continues to hover above the Federal Reserve’s 2% target, and unemployment is expected to rise modestly to 4.5% by year-end.

The U.S. dollar has been steadily weakening, recently testing support around 97.38. While a short-term rebound toward 99 is possible, structural challenges—such as renewed trade tensions and capital outflows—are likely to limit any sustained recovery. This dollar softness has helped fuel a rally in commodities and precious metals, which are benefiting from both inflation hedging and strong global demand. Polysilicon prices have jumped amid solar industry bottlenecks, while iron ore and coal have also posted solid gains.

Political risks are adding to market uncertainty. The Trump administration has withheld over $26 billion in FY2025 funding, targeting key health agencies like the NIH and CDC, as well as clean energy and broadband infrastructure programs. These impoundments, which bypass Congressional authority, have raised the spectre of a government shutdown as the fiscal deadline approaches. In a further rollback of climate policy, the administration has dismantled the Climate Risk Committees under the Financial Stability Oversight Council. These committees were central to assessing climate-related financial risks, and their removal marks a significant reversal of Biden-era efforts to integrate climate considerations into financial oversight.

Markets were also rattled by Trump’s announcement of a 50% tariff on semi-finished copper imports. Copper futures fell sharply after reaching record highs, and domestic prices now trade at a 25% premium over global benchmarks. Analysts warn that this move could disrupt supply chains in critical sectors such as semiconductors, electric vehicles, and AI infrastructure, potentially driving up costs and slowing innovation. Investor confidence has been further shaken by Trump’s escalating attacks on Federal Reserve Chair Jerome Powell. Referring to Powell as a “major loser” and threatening to fire him, Trump has raised fears about the politicisation of monetary policy. Such rhetoric risks undermining the Fed’s independence, which is widely seen as essential to maintaining global trust in the U.S. financial system. Some analysts estimate that Powell’s removal could trigger a market loss of up to $1.5 trillion.

Adding to the uncertainty is Trump’s new immigration policy, which imposes a $100,000 fee on new H-1B visa applications. This dramatic increase—more than 25 times the current cost—has triggered panic across the tech and research sectors. While current visa holders are exempt, the fee applies to new applicants outside the U.S., potentially deterring foreign talent from entering the country. Universities and research institutions warn of a “body blow” to American science, with fears that key STEM courses and projects may be abandoned due to hiring constraints. Tech giants like Google and Microsoft have already advised employees abroad to return immediately, amid confusion over travel eligibility.

Despite these risks, major equity indices remain elevated, driven by a narrow group of AI-linked stocks. Just ten companies now account for more than a third of total market capitalisation, with seven responsible for over half of year-to-date returns. Valuations are stretched, and any earnings disappointment could spark significant volatility. While tech leaders like NVIDIA and Microsoft continue to dominate, newer players such as CoreWeave and MongoDB are gaining traction with their AI infrastructure and data solutions.

In summary, while macro risks such as trade tensions, political instability, and Fed independence remain in focus, the consensus among leading analysts is that U.S. equities—particularly small-cap and value stocks—offer compelling opportunities. The expected rate cuts and strong earnings backdrop are driving a cautiously bullish stance, though investors are advised to remain selective and watch for volatility. 

Europe

Fiscal Firepower Meets Geopolitical Uncertainty

The Eurozone economy is stabilising as it enters the final quarter of 2025. Inflation has returned to near the ECB’s 2% target, and the central bank’s rate cuts over the past year have restored liquidity and improved credit conditions. With the deposit rate now at 2.0%, sentiment across services, construction, and professional sectors is improving. GDP growth is expected to remain modest at around 1.2%, supported by resilient consumer demand and targeted fiscal expansion.

Germany’s €500 billion stimulus plan is set to accelerate in Q4, following constitutional changes that loosen borrowing constraints. The spending surge—focused on defence, infrastructure, and innovation—is expected to provide a short-term boost to industrial output and employment. Bond markets have responded positively, with bond yields narrowing against U.S. Treasuries, signalling renewed investor confidence.

European equity markets have gained momentum, particularly in mid-cap industrials and defence-linked stocks. Rheinmetall AG has surged over 300% since the U.S. election, driven by rising defence budgets and geopolitical tensions. Institutional investors are increasingly favouring Eurozone assets, attracted by more attractive valuations and a relatively stable policy environment compared to the U.S.

Nobody seems quite sure what to make of President Donald Trump’s astonishing reversal on Ukraine this week. After months of proclaiming that President Volodymyr Zelenskiy held no cards, he now says that Ukraine can realistically aim to take back all the territory currently occupied by Russia. 

However, risks remain. President Trump’s sudden reversal on Ukraine—now backing full territorial recovery—has injected fresh uncertainty into European diplomacy. While this has boosted defence stocks, it undermines earlier hopes for a negotiated peace that could have revived trade and investment. Political instability is also rising, with populist parties gaining ground in Germany, France, and the UK, threatening fiscal cohesion and policy continuity.

Key Investment Highlights:
Defence & Infrastructure: Strong tailwinds from fiscal expansion and geopolitical rearmament
Mid-Cap Industrials: Benefiting from capital inflows and improving credit conditions
Equity Valuations: Eurozone stocks remain attractively priced relative to U.S. peers

Q4 Risk Factors:
Geopolitical Volatility: Trump’s Ukraine stance and Middle East tensions could disrupt sentiment
Political Fragmentation: Rising populism may challenge fiscal discipline and reform agendas
Export Headwinds: U.S. tariffs on European goods continue to weigh on manufacturing, especially in Germany and Italy

As Europe retools its economy and defence posture, investors should watch for volatility but also recognise the upside potential in sectors aligned with fiscal stimulus and strategic investment.  

United Kingdom

Holding Steady Amid Inflation and Opportunity
The UK economy is navigating a fragile recovery as it heads into the final quarter of 2025. Inflation remains stubborn at 3.8%, keeping pressure on household budgets and delaying any immediate rate cuts. The Bank of England has held interest rates steady at 4%, balancing inflation risks with slowing growth.

After a strong first half to the year, economists expect growth to slow over the second half as a whole as U.S. tariffs continue to weigh on the global economy and Britain faces headwinds from rising inflation and uncertainty over who will be hit by likely tax rises later this year.

Business confidence is mixed. Manufacturing has shown signs of life, supported by export demand and targeted investment, while the services sector is losing momentum. Unemployment has edged up to 4.7%, with falling job vacancies and weaker hiring across retail and hospitality.

Consumer sentiment remains cautious. Households are saving more—currently at a 9.6% savings rate—but spending less, especially on non-essentials. Confidence has dipped, with rising concerns about job security and cost-of-living pressures.

Equity markets are showing selective strength. UK stocks remain undervalued compared to global peers, offering attractive dividend yields and solid earnings growth. Large-cap names are drawing income-focused investors, while small- and mid-cap stocks are attracting takeover interest due to discounted valuations. 

The UK economy enters the final quarter of 2025 with signs of stabilisation, but underlying challenges remain. Inflation is easing gradually, though still above the Bank of England’s target, and interest rates have been held at 4% to balance price pressures with slowing growth. Unemployment is rising, and consumer sentiment remains cautious, reflecting ongoing cost-of-living concerns.

In response, the government has introduced several targeted policy measures. The updated Modern Industrial Strategy aims to boost long-term productivity through investment in advanced manufacturing, clean energy, and digital infrastructure. The Backing Your Business initiative supports SMEs with improved access to finance, export assistance, and procurement opportunities. Workforce development is also a priority, with new funding allocated to technical colleges and digital skills programs to align labour supply with high-growth sectors.

While political uncertainty and global headwinds continue to weigh on sentiment, the policy direction is increasingly focused on structural reform and competitiveness. For investors, UK equities remain attractively priced, particularly in industrials, healthcare, and export-oriented businesses. The combination of fiscal support, sector-specific investment, and improving macro conditions presents selective opportunities for long-term positioning.

As Q4 unfolds, the focus will be on how effectively these policies translate into real economic momentum. Inflation, employment, and fiscal clarity will be key indicators to watch. 

Japan

Japan’s economy showed unexpected strength in Q2 2025, with real GDP growing at an annualized rate of 2.2%. This was driven by resilient exports and steady business investment, despite the drag from U.S. tariffs. Automakers maintained export volumes by cutting prices, while capital expenditure remained firm. However, the outlook for Q3 is more subdued, with GDP expected to contract by 1.7% annualized due to weaker residential investment and the delayed impact of trade restrictions.

Personal consumption remains flat. Although Q2 saw a modest 0.4% increase, rising food prices and delayed real wage growth continue to weigh on household spending. Inflation remains above the Bank of Japan’s 2% target, with core CPI hovering between 2.5% and 3.0%. The BoJ held its policy rate steady at 0.5% in September but signalled a gradual shift toward normalisation. Two board members proposed a hike to 0.75%, and further tightening could be considered if wage growth accelerates.

In a notable policy shift, the BoJ announced plans to begin divesting its holdings of exchange-traded funds (ETFs) and J-REITs, marking a step away from its ultra-accommodative stance. The central bank will sell ETFs at a pace of ¥330 billion annually and J-REITs at ¥5 billion, aiming to reduce market distortions and secure capital buffers. This move reflects growing confidence in the economy’s ability to sustain growth without heavy central bank support.

Bond markets have responded with rising yields. The 10-year Japanese government bond yield has climbed to 1.63%, and long-dated bonds are nearing multi-decade highs. While this reflects inflationary pressures and policy normalisation, Japan’s strong domestic savings and current account surplus continue to anchor its debt market.

Trade policy has shifted significantly. On September 16, the U.S. implemented a new tariff framework under the U.S.-Japan Strategic Trade Agreement. Nearly all Japanese imports are now subject to a baseline 15% tariff, including autos, auto parts, and industrial goods. While civil aircraft and related components remain exempt, the broader tariff regime is expected to weigh on Japan’s export competitiveness. Tokyo has committed to offsetting some of the impact by investing $550 billion in U.S.-selected infrastructure and increasing purchases of American agricultural and defense products123.

For investors, Japan presents a compelling case. Equity valuations remain attractive, particularly in sectors tied to domestic demand and corporate reform. Financials, industrials, and tech hardware are trading near fair value and stand to benefit from rising rates, improved governance, and capital efficiency initiatives. The Tokyo Stock Exchange’s reform agenda has prompted widespread buybacks and better capital allocation, enhancing shareholder returns.

Japan’s expanded NISA (Nippon Individual Savings Account) scheme is successfully shifting household assets from cash to equities, with recent data from June 2025 showing household investment in stocks and investment trusts rising, while cash and deposits slightly decrease

Foreign investor interest is returning, driven by reflation, structural reforms, and a more stable macro backdrop. The expanded NISA scheme is also shifting domestic household assets from cash into equities, supporting market liquidity and long-term growth.

Looking ahead, the BoJ is expected to hold rates steady through year-end, with a possible hike in early 2026. Inflation is likely to remain above target, but wage growth and corporate earnings should provide support. A weakening dollar and Fed easing could also strengthen the yen, improving terms of trade and investor sentiment.

China

China’s economy remains under pressure as key indicators point to a broad-based slowdown. Retail sales rose just 3.4% year-on-year in August, the weakest pace since late 2024, while industrial output grew 5.2%, down from 5.7% in July. The slowdown reflects fading momentum from earlier stimulus measures and persistent weakness in domestic demand, particularly in housing and consumer durables.

China’s economy faces mounting pressure as factory output and retail sales weaken, deflation persists, and unemployment rises to 5.3%. Despite stimulus efforts, consumer demand remains soft and property prices continue to fall. A new mega-dam project may boost commodity demand, but further policy support is likely needed to meet growth targets and stabilize domestic confidence.

Factory activity remains subdued, with the official manufacturing PMI stuck below the 50 threshold for a third consecutive month. Excess capacity across sectors—from electric vehicles to solar panels—is contributing to widespread underutilisation and price competition. This “involution,” or race-to-the-bottom pricing, has led to entrenched deflationary pressures. Producer prices fell 2.9% year-on-year in August, while consumer prices dipped 0.2%, marking a third straight month of negative inflation.

Despite collapsing exports to the U.S.—down 33% year-on-year—China has managed to offset some of the impact through trans-shipments and increased trade with ASEAN, Africa, and the EU. Overall exports rose 4.4% in August, but falling export prices are squeezing margins, especially in overcapacity sectors like solar and electronics.

To support domestic demand, Beijing has rolled out a new package of measures aimed at boosting service consumption. These include expanded credit support, infrastructure investment in tourism and elderly care, and relaxed restrictions on private and foreign investment in healthcare and education. The People’s Bank of China has also launched a ¥500 billion relending facility to support service-sector lending.

However, the property market remains a major drag. New and existing home prices continued to fall in July, and fixed-asset investment in real estate slumped nearly 13% year-to-date. With consumer sentiment still weak and youth unemployment elevated, economists are divided on whether additional fiscal stimulus will be needed to meet the government’s 5% growth target.

A bright spot for commodities and infrastructure investors is China’s newly launched mega-dam project in Tibet. Set to be the world’s largest hydropower facility, the dam will require an estimated 2.4 million tonnes of steel and is already driving a rebound in iron ore prices, which climbed to US$104 per tonne in August. The project is expected to support demand for cement, copper, and construction equipment over the next decade, potentially marking the beginning of a new commodity supercycle.

Investment Outlook

China’s near-term economic outlook remains mixed. Deflation, factory underutilisation, and weak consumer demand are key risks. However, targeted stimulus, trade diversification, and large-scale infrastructure projects offer selective opportunities. Investors should focus on sectors tied to domestic services, industrial upgrading, and commodity-linked infrastructure. While volatility remains high, long-term positioning in areas aligned with policy support and global capex trends may prove rewarding.

Emerging Markets

Value Plays Amid Tariff Turbulence 

Despite persistent geopolitical tensions and the ripple effects of protectionist measures from major economies, many emerging regions continue to offer compelling investment opportunities, particularly for value-oriented investors.

Macroeconomic indicators suggest that emerging markets are maintaining a growth edge over developed economies. With average GDP growth projected around 3.7%, these regions are outpacing their advanced counterparts by a significant margin. Inflation, which plagued many EMs in 2024, is now easing, with the average rate expected to fall to approximately 5%. This moderation is largely due to proactive monetary policies and stabilizing commodity prices. While some countries like Turkey and Ghana still contend with double-digit inflation, the broader trend points to improving macro stability.

The Price-to-Book ratios for major emerging markets as of Q4 2025, alongside the impact of newly announced U.S. tariffs. Regions are color-coded based on tariff exposure: Green indicates low impact, Orange indicates medium impact, and Red indicates high impact.

Valuation metrics reinforce the attractiveness of select emerging markets. On a price-to-book basis, regions such as Brazil, South Africa, and South Korea stand out as undervalued. Brazil, in particular, trades at a price-to-book ratio near 1.0 and a forward price-to-earnings ratio of just 7.1, making it one of the cheapest markets globally. South Africa, with a ratio around 1.2, benefits from improving political sentiment and fiscal discipline. South Korea, despite recent corrections in its tech sector, remains attractively priced with a forward P/E of 7.9. In contrast, India and Taiwan are trading at elevated valuations, with price-to-book ratios of 3.5 and 3.0 respectively, driven by strong growth narratives and sector-specific booms such as AI and digital infrastructure.

However, the investment landscape has been complicated by a new wave of tariffs announced by the Trump administration on September 25. These measures include a 100% tariff on pharmaceuticals not manufactured in the United States, a 50% tariff on kitchen cabinets and bathroom vanities, a 30% tariff on upholstered furniture, and a 25% tariff on heavy trucks. These tariffs are set to take effect on October 1 and are expected to disproportionately impact countries with significant export exposure to these sectors.

China remains the most vulnerable, already facing a 34% country-specific tariff and now seeing additional pressure on its pharmaceutical and furniture exports. India has also been targeted with a 25% emergency tariff due to its continued imports of Russian oil. Mexico and Canada are dealing with broad-based tariffs of 25% on most goods, with only energy receiving a reduced rate. The European Union and Japan are subject to reciprocal tariffs starting at 15%, further straining global trade relations.

In contrast, several emerging markets appear relatively insulated from these trade disruptions. Brazil, South Africa, Indonesia, Vietnam, and the Philippines have either avoided direct targeting or have reached preliminary trade agreements with the United States. These regions may benefit from trade diversion and increased investor interest as global supply chains adjust.

For investors, the fourth quarter presents a nuanced opportunity. While tariff risks and geopolitical uncertainty remain elevated, the combination of attractive valuations and improving macro fundamentals in select emerging markets offers a compelling case for strategic allocation. 

Commodity Market Outlook: 

Commodities in Transition: Deglobalisation is no longer a theoretical concept—it is actively reshaping global commodity markets. Tariffs, industrial policy, and geopolitical realignments are fragmenting trade networks. This shift is creating winners and losers across sectors. Energy and industrial metals face headwinds from protectionist policies, while precious metals benefit from currency diversification and geopolitical hedging.

From a valuation perspective, agricultural commodities—particularly grains—offer value after recent corrections. Crude oil may also be nearing a bottom if supply tightens unexpectedly.

GOLD

Gold has emerged as a standout performer, with COMEX futures trading at $3,432.50 per troy ounce and spot prices at $3,382.98. Investors are turning to gold as a hedge against inflation and geopolitical uncertainty. Central banks have ramped up their gold purchases, diversifying away from the U.S. dollar, which has lost significant ground this year. With the Federal Reserve signaling further rate cuts and inflation remaining above target, gold’s appeal as a store of value is likely to persist. The weakening dollar has made gold more attractive to non-U.S. buyers, reinforcing its bullish momentum.

OIL

WTI Crude Oil presents a more nuanced picture. Prices have softened to $63.36 per barrel, with Brent crude at $67.30. The outlook is clouded by rising supply and uneven demand. OPEC+ has begun easing production cuts, while output from non-OPEC producers like the U.S. and Brazil is increasing. Demand growth is being constrained by China’s slower-than-expected recovery and the global shift toward electrification. The Trump administration’s newly announced tariffs have added further pressure, disrupting trade flows and dampening sentiment. Futures markets suggest a modest decline in prices, though geopolitical risks could still trigger short-term volatility. 

Base metals are entering the fourth quarter of 2025 with mixed signals across the sector. Copper remains the strongest performer, trading at $4.71 per pound, supported by tight supply and robust demand from electrification and infrastructure projects. However, concerns about hidden inventories and slowing Chinese demand are tempering bullish sentiment. Nickel, priced at $6.93 per pound, continues to struggle under the weight of oversupply, particularly from Indonesia, and weak demand from stainless steel and construction. Aluminium, at $1.21 per pound, has seen modest gains due to supply disruptions and trade distortions caused by U.S. tariffs, while zinc and lead remain subdued, reflecting weak construction activity and recovering mine output.

The weakening U.S. dollar has provided some support to base metal prices, making them more attractive to international buyers. Inflation remains a key factor, influencing both production costs and investor sentiment. Deglobalisation is reshaping supply chains, with tariffs and industrial policy adding volatility to trade flows. China’s decarbonisation strategy is also influencing the sector, particularly through its push to reduce blast furnace steel production and expand electric arc furnace capacity. This transition is expected to increase demand for scrap and low-carbon metals, reinforcing long-term support for copper, aluminium, and nickel. Overall, the outlook is cautiously optimistic, with selective opportunities emerging amid structural shifts.

Agricultural Commodities

Agricultural commodities are experiencing mixed trends. Grain markets have softened due to strong harvests and high inventories. Corn is trading at $409.25 per bushel, wheat at $533.25, and cotton at 66.68 US cents per pound. These levels suggest grains are undervalued after recent corrections. However, cocoa has surged to $7,612 per metric ton, driven by supply constraints and robust demand. Inflation continues to impact input costs and logistics, keeping food prices sensitive to macroeconomic shocks. Deglobalisation is adding complexity to agricultural trade, with countries increasingly prioritising food security and regional sourcing over global efficiency.

In summary, The U.S. dollar and inflation remain central to commodity pricing. A weaker dollar generally supports higher commodity prices by making them cheaper for international buyers. However, inflation is a double-edged sword—it boosts nominal prices but also erodes consumer purchasing power and raises production costs. The interplay between inflation and the weakening dollar is broadly supportive of commodity prices, especially for exporters.