Financial markets enter the second half of 2025 in a mixed environment. Growth in the United States and Europe is holding up better than expected, but underlying indicators point to a slowdown. Trade tensions, shifting monetary policies, and changing capital flows are redrawing the global investment landscape.
In the United States, new tariffs raise trade barriers by 14 percentage points, likely putting upward pressure on consumer prices. However, softer domestic demand should keep core PCE inflation around 3% this autumn before it eases. In the euro area, inflation has returned to the ECB’s 2% target, paving the way for another rate cut in the fourth quarter. Germany will further support demand through expansionary fiscal policy. Switzerland, meanwhile, faces the double challenge of high U.S. tariffs and a strong franc, although domestic consumption remains resilient.
Among emerging markets, China remains resilient but is grappling with deflationary pressures and slowing activity. Elsewhere, monetary easing and a weakening U.S. dollar are supporting local-currency bonds.
On the monetary policy front, the Fed is expected to cut rates in September and December, the ECB to ease again at the end of 2025, and the Bank of England to continue its gradual reductions into 2026.
For fixed income investors, sovereign yields remain attractive, especially at intermediate maturities (5–7 years). In currencies, the dollar’s weakening trend favours the euro and yen. Gold retains its appeal, underpinned by continued central bank demand.
Global equities are reaching new highs, but U.S. valuations appear stretched. By contrast, European markets still trade at a significant discount, with catch-up potential in 2026. In this context, J. Safra Sarasin favours defensive sectors – healthcare, consumer staples, and utilities – over cyclical stocks.
