Markets are learning to keep calm and carry on

THE first half of the year has been a geopolitical hot mess. US President Donald Trump’s chaotic approach to tariffs, escalating military conflict in the Middle East, the continuing war in Ukraine and the existential threat posed to the North Atlantic Treaty Organization (Nato) have left financial markets... largely unscathed? Global equities are in rude health, government bond yields are becalmed and oil is trading in line with its five-year average. The US dollar is the only casualty, losing ground against all of its peers in the past six months. 

So the remainder of 2025 will follow the same pattern, right? Well. The Taco – Trump Always Chickens Out – trade in equities will be re-examined early this month when the tariff pauses end. The independence of the Federal Reserve looks set to be sorely tested. The fiscal implications of Nato’s 32 members belatedly agreeing to increase defence spending to 5 per cent of gross domestic product will reverberate around bond markets, particularly in Europe. 

“The interplay of politics, economics and markets will make assaying the paths of stocks, bonds, commodities and currencies this year even harder than usual,” we wrote at the start of the year. The capriciousness of the world’s most important person means that staying nimble and being willing to scuttle to the sidelines will remain the safest strategy. In short: Be careful out there.