AI, Tariffs, Bonds, Currencies, and Gold Outlook

Discover how AI investments, US-China trade shifts, and central bank gold buying shape equity, bond, currency, and commodity markets. Learn where to allocate capital for resilience and growth in a volatile global economy.

Key Points

• Global equities rose on US-China tariff cuts and AI investments, but high US yields pressured real estate, prompting investors to favor tech, semiconductors, gold, and defensives for resilience.
  
  
• Bond markets favor a barbell strategy of short-term high-quality and selective long-duration bonds amid improved liquidity, high US yields at 4.5%, policy uncertainty, and rising emerging market credit risks, with a preference for US, German, and Chinese sovereign bonds.
  
  
• The SGD remains stable amid near-term USD and CNH weakness, but rising US policy uncertainty, expected Fed cuts, and projected USD/CNH rebound favor tactical diversification into Middle Eastern currencies, a JPY recovery, and selective CNH and USD positions while avoiding fragile emerging market currencies.
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• Gold remains a key hedge for SGD investors amid strong central bank demand, US fiscal risks, and expected Fed cuts, with ideal accumulation at USD 3,000–3,250, while diversification into industrial metals and energy commodities offers additional resilience against market volatility and currency shifts.

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​Global Equities Rally on AI Investments and Trade De-escalation but Face Rising Yields and Policy Risks

AI Investment and Trade De-escalation Drive Global Equity Optimism

​Global equities are rising on trade de-escalation and massive AI-driven investments.

• US-China tariffs reduced by 115 percentage points for 90 days, immediately lifting NASDAQ by 4.3% and Hang Seng Index by 3%.
• Microsoft, Amazon, and Google plan to invest a combined USD250 billion in AI infrastructure, data centres, chip procurement, and next-gen algorithms in 2025.
• The Middle East is emerging as a new AI growth hub, with USD100 billion in AI-driven technology investments planned over the next decade.
• IG spreads narrowed from 120 to 98 bps, signaling improved corporate fundamentals and credit market liquidity.
• Central bank gold purchases surged to 1,086 tonnes in Q1 2025, highlighting persistent systemic risks and elevated demand for safe-haven assets.

Rising Yields and Policy Uncertainty Weigh on Equity Market Outlook

Policy uncertainty and rising bond yields create headwinds for equities.

• US 10-year bond yields at 4.5% increase borrowing costs, pressuring real estate and infrastructure sectors.
• China’s strategic pivot toward domestic consumption and the easing of rare earth export controls alleviate cost pressures on global semiconductor production.
• Historical trade war data shows goods subjected to 25% tariffs experienced a one-third decline in US exports, reinforcing the importance of the current tariff relief.
• Ongoing recession risks sustain investor demand for defensive sectors, while elevated policy volatility encourages a flight to quality and safe-haven assets like gold.

Focus on Technology, Semiconductors, and Defensive Plays for Equity Portfolios

Investors should prioritize growth sectors and balance with defensive plays.

• Technology and semiconductor equities in the US and China remain top picks, underpinned by unprecedented AI investment commitments.
• The Hang Seng Technology Index remains attractively priced, trading around -1 standard deviation below its historical mean, with tactical opportunities identified below 5,250.
• Defensive allocations to gold-linked equities, high-quality consumer staples, and healthcare stocks help hedge against ongoing macroeconomic volatility.
• A barbell strategy combining high-growth technology stocks with resilient defensive sectors ensures portfolio stability amid policy uncertainty and recession risks.
• Maintain diversified equity exposure across regions, with a focus on US technology and communication services, European industrials, and Chinese technology equities for balanced growth potential.

  

​Improved Bond Market Liquidity Presents Selective Opportunities Amid Rising Yields and Trade Fragmentation

Bond Market Liquidity Improves as Yield Curves Steepen

Bond markets are experiencing healthier liquidity, improved corporate fundamentals, and favorable conditions for selective duration strategies.

• IG spreads have tightened from their YTD high of approximately 120 bps to 98 bps, reflecting improved corporate balance sheets and reduced near-term default risks.
• A steeper yield curve presents opportunities to pick up high-quality credit in the 7-10Y bucket, rewarding moderate duration exposure.
• Corporate fundamentals are strengthening as companies proactively de-leverage amid trade uncertainty, supporting lower bond volatility.
• Net credit upgrades highlight positive momentum in corporate debt quality, lowering systemic risk and stabilizing spreads.
• Liquidity ratios have improved significantly, particularly in US investment-grade corporate bonds, as spreads continue to decline.

High Yields and Fragmented Trade Increase Bond Market Risks

Rising yields, fragmented global trade, and policy uncertainty heighten credit and duration risks in bond markets.

• The US 10-year government bond yield rose to 4.5%, signaling elevated duration risk and compressing bond prices.
• US and China government bond yields climbed by 3-4 bps, reflecting synchronized growth expectations but also increasing volatility spreads.
• The 10-year US yield is above the expected 12-month range of 4.00-4.25%, suggesting potential for mean reversion and price volatility.
• Liquidity indicators show short-term improvements, but bond markets remain sensitive to policy announcements and economic data surprises.
• Export-reliant emerging markets face heightened credit risks as global trade patterns fragment, negatively impacting their bond issuance attractiveness.

Diversify Bond Portfolios with Developed Market Sovereigns and Chinese Bonds

Investors should diversify bond portfolios with high-quality sovereigns and select opportunities in Chinese government bonds.

• Maintain overweight positions in short-duration high-quality investment-grade bonds (2-3Y) as a defensive strategy against policy uncertainty.
• Take advantage of the steeper yield curve by selectively adding duration exposure through high-quality bonds in the 7-10Y range.
• US and German sovereign bonds remain effective defensive assets against economic uncertainty and market volatility.
• Chinese sovereign bonds offer diversification benefits with low 10-year yields at 1.67% and potential capital appreciation from policy support.
• Investors should remain cautious on emerging market debt, particularly in Asia, due to rising credit risks from trade fragmentation and policy shifts.

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​SGD Strengthens in the Near Term but Faces Currency Volatility from US and China Policy Shifts

SGD Benefits from Near-Term Strength but Faces Medium-Term Volatility

The SGD shows near-term resilience supported by regional currency dynamics but may weaken as external risks escalate.

• USD/CNH declined to 7.1922 and is expected to test support at 7.1360, signaling short-term SGD strength through trade linkages.
• A medium-term rebound in USD/CNH toward 7.380 is projected, introducing renewed currency volatility and potential SGD depreciation.
• US and China 10-Year Government Bond Yields climbed to 4.45% and 1.67%, narrowing interest rate differentials and reducing carry trade incentives in favor of the SGD in the short term.

US Policy and Chinese Currency Dynamics Create Ongoing Currency Risks

Elevated policy uncertainty in the US and structural shifts in China’s economy drive FX market volatility, directly impacting SGD performance.

• US political volatility and fiscal stimulus measures increase inflation risks and policy uncertainty, weakening the USD’s safe haven appeal relative to the SGD.
• Anticipated 75 bps of Fed rate cuts by Q1 2026 place further downward pressure on the USD, while the MAS’s currency-focused policy supports SGD stability.
• China’s export diversification and suspension of rare earth export controls improve regional trade flows, offering temporary support for the CNH and SGD.
• However, the USD/CNH is expected to rebound in the medium term, introducing potential headwinds for the SGD.

Diversify SGD Holdings into Middle Eastern Currencies, JPY, and CNH

Investors should diversify SGD holdings by allocating into currencies supported by structural growth trends and policy normalization opportunities.

• Middle Eastern currencies such as the AED and SAR are positioned for appreciation, benefiting from USD100 billion in AI-driven investments and strong capital inflows.
• The Japanese Yen presents a medium-term rebound opportunity, as Japan’s low interest rates and rising inflation expectations suggest future policy normalization.
• Tactical investments in CNH offer near-term currency gains, with the USD/CNH expected to test 7.1360 support before rebounding to 7.380 over the next 1-3 months.
• While the USD remains under pressure from policy uncertainty, elevated US yields peaking at 4.5% create a window for short-term gains before anticipated Fed rate cuts weaken the USD.

  

​Central Bank Gold Purchases Surge as Inflation Risks and Trade Disruptions Sustain Commodity Demand

Central Banks Accelerate Gold Buying as Safe-Haven Demand Intensifies
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Gold remains a critical hedge for SGD portfolios amid rising geopolitical risks and US fiscal pressures.

• Central bank gold purchases spiked to 1,086 tonnes in Q1 2025, more than doubling the 2010–2021 average of 473 tonnes, reflecting aggressive accumulation.
• US fiscal deficits drive monetary debasement risks, supporting higher gold prices globally and relative appreciation in SGD terms.
• Heightened geopolitical tensions sustain gold’s safe-haven appeal, even as financial market volatility remains elevated.
• Persistent recession risks and policy uncertainty amplify volatility in gold prices, increasing its importance as a portfolio stabilizer.

Inflation Risks and Trade Realignments Sustain Commodity Demand

Global macroeconomic and geopolitical pressures continue to drive commodity performance, particularly for gold and industrial metals.

• Persistent inflation concerns and expectations of 75 bps Fed rate cuts by Q1 2026 maintain demand for gold as a strategic inflation hedge.
• Trade fragmentation and China’s export policy shifts disrupt supply chains, supporting higher prices for critical metals and energy commodities.
• Strong liquidity conditions, indicated by IG spreads tightening from 120 bps to 98 bps, reduce forced gold selling and stabilize market demand.
• Rising US and China bond yields signal financial uncertainty, reinforcing gold’s safe-haven appeal for SGD investors.

Expand Gold Holdings and Diversify into High-Demand Commodities

Investors should prioritize gold as a core hedge while diversifying into industrial and energy commodities for growth.

• Maintain core gold exposure between USD 3,000 and 3,250 to capitalize on sustained demand and currency hedging benefits.
• Invest in physically backed gold ETFs for liquidity and price transparency, supporting portfolio resilience against financial market stress.
• Diversify into industrial metals like copper and aluminum, backed by USD100 billion in AI-driven Middle East infrastructure investments.
• Energy commodities such as LNG and oil remain strategically valuable amid policy-driven supply realignments and Singapore’s role as a regional trading hub.
• Anticipated USD strength over the next 1-3 months favors gold and USD-denominated commodities as effective portfolio hedges for SGD-based investors.