LCI Monthly – What Shaped May 2025

Economy & Politics

Tariff Pause in U.S.–China Trade Dispute
The U.S. paused additional tariffs on Chinese imports, providing temporary relief to markets amid broader trade tensions.

U.S. Economy Contracts in Q1
The U.S. economy shrank by 0.2% in the first quarter of 2025, reflecting the initial impact of global trade tensions and weaker business investment. This marked a downward revision from earlier estimates.

U.S. Delays Tariffs on EU Imports
The implementation of a 50% tariff on European imports was postponed by the Trump administration until July 9, helping ease investor concerns in Europe.

European Growth Forecasts Revised Down
The European Commission lowered its 2025 GDP growth projections to 1.1% for the EU and 0.9% for the eurozone, citing the impact of tariffs and macroeconomic uncertainty.

Federal Reserve Holds Rates Steady
At its May 6–7 meeting, the Fed maintained the federal funds rate at 4.25%–4.50%, citing a need for caution amid mixed economic indicators and ongoing trade policy uncertainty.

U.S. Consumer Caution
Despite strong labor markets and resilient corporate earnings, consumer behaviour remained cautious in May: spending rose by only 0.2%, while the personal savings rate climbed to 4.9%.

ECB Holds, Previous Rate Cut in Focus
While the ECB did not meet in May, its April decision to cut key interest rates by 25 basis points remained a focal point.

Moody’s Downgrades U.S. Sovereign Rating
Moody’s downgraded the U.S. long-term credit rating from AAA to Aa1, citing rising fiscal deficits and increasing political polarization.

Warren Buffett Retires
A symbolic moment in global finance as Warren Buffett stepped down from his leadership role at Berkshire Hathaway.

Germany Elects Friedrich Merz as Chancellor
On May 6, Friedrich Merz was elected Chancellor in the second round of parliamentary voting, signalling a notable political shift in Germany.

A New Pope is Elected
The Vatican announced the election of Pope Leo XIV, born Robert Francis Prevost, an American prelate from Chicago. His election marks the beginning of a new era of spiritual leadership and the first time a pontiff from the United States has ascended to the papacy.

Markets

Fixed Income

Eurozone – 10-Year Government Bonds
Eurozone bond yields rose modestly in May, with the German 10-year Bund yield climbing from 2.43% to 2.57%. The move reflected stronger economic data, renewed risk appetite, and expectations that the ECB may slow its easing cycle if inflation remains sticky.

U.S. Treasuries – 10-Year Yield
The 10-year U.S. Treasury yield rose from 4.25% to 4.41% in May. A weak Treasury auction mid-month, coupled with concerns about a $3.3 trillion tax bill and the Moody’s downgrade, contributed to heightened volatility.

Equity

Global Overview
Global equities delivered robust gains in May, with the MSCI World Index (in USD) rising +6.0% for the month and +5.2% YTD. Investor sentiment improved on easing trade tensions, stable inflation, and encouraging earnings momentum.

Europe

European markets posted strong gains, especially in southern Europe, as the delayed U.S. tariffs, resilient earnings, and improving confidence supported risk appetite.

• Eurozone (aggregate): +5.3% (May), +14.3% (YTD)
  Driven by broad-based gains, especially in southern Europe.

• Germany: +6.3% (May), +20.5% (YTD)
  Benefited from strong industrials and defense-related stocks.

• France: +3.7% (May), +7.9% (YTD)
  Solid earnings momentum and global risk-on sentiment.

• Italy: +8.3% (May), +21.9% (YTD)
  Strong performance in banking and cyclical sectors.

• Spain: +6.4% (May), +27.8% (YTD)
  Continued leadership in financials and tourism-related stocks.

• United Kingdom: +3.4% (May), +9.2% (YTD)
  Supported by commodity exposure and stable domestic macro.

• Switzerland: +1.8% (May), +8.7% (YTD)
  Defensive sectors and large-cap multinationals performed steadily.

Latin America

Latin American equities continued to benefit from strong commodity demand and U.S. trade flows, with Mexico outpacing Brazil in May.

• Brazil: +1.0% (May), +11.2% (YTD)
  Slower momentum in May, but still strong year-to-date gains on commodities.

• Mexico: +3.6% (May), +19.8% (YTD)
  Benefiting from proximity to U.S. trade and manufacturing strength.

North America

North American markets rebounded strongly in May, led by the U.S., where easing inflation fears and solid corporate results fueled optimism.

• USA: +6.5% (May), +1.1% (YTD)
  Driven by easing inflation concerns, resilient earnings, and tariff relief speculation.

• Canada: +5.3% (May), +7.0% (YTD)
  Strong energy and financial sector performance supported broad-based gains.
  

Asia-Pacific

Asian markets saw a broad-based rebound in May, with strong tech-led gains in Korea and Japan, while China remained more muted due to structural concerns.

• China: +1.8% (May), +11.7% (YTD)
  Gains moderated by ongoing concerns in real estate and domestic consumption.

• India: +2.5% (May), +2.5% (YTD)
  Consistent, though moderate, growth amid valuation headwinds.

• South Korea: +4.7% (May), +11.3% (YTD)
  Tech sector strength, especially in semiconductors, led the rally.

• Indonesia: +7.6% (May), +3.1% (YTD)
  Foreign inflows and macro stability supported a strong monthly rebound.

• Japan: +5.3% (May), +1.0% (YTD)
  Aided by currency weakness and technology stocks.

• Australia: +3.6% (May), +4.3% (YTD)
  Resource and financials sectors rebounded from earlier softness.