Soft Inflation, Trade Tensions, Oil Risk Shape Global Market Positioning

​Global markets navigate a potent mix of softer US inflation, resilient AI-driven semiconductor sales exceeding USD 55 billion, and heightened geopolitical tensions pushing oil and gold higher. Investors are recalibrating portfolios toward defensive dividends, high-quality tech, short-duration bonds, and core safe havens like gold to balance yield and risk in 2025–2026.

Key Points

• US CPI rose 0.1% m/m in May (2.4% y/y, 2.8% core), lifting September Fed cut odds to 65%. Global semiconductor sales topped USD 55 billion; Europe’s 2025 EPS is -0.5% (vs. global 7.8%, US 10.7%) and Taiwan’s exports rose 38.6% y/y. Oil may reach USD 100–150 if Iran tensions rise. US–China tariffs stay at 55% and 10%; Trump’s tariffs and China’s weak jobs/property drag demand. Germany’s stimulus aids banks; ASEAN-6 exporters benefit short term. Stay defensive in Asian/European dividend stocks, overweight tech, AI, defence, note Asia ex-Japan’s 12.7% EPS growth and India’s INR 2.5 trillion liquidity from rate cuts.
  
  
• 30Y US Treasury yield was 4.844% with 3.1x cover; US IG yields 5.2% (10.4 yrs), Europe IG 3.1% (5.2 yrs), Asia IG 4.9% (7.3 yrs), US HY 7.4% (4.9 yrs). China’s May CPI -0.1% y/y, PPI -3.3% y/y; India’s 50 bps cut and INR 2.5 trillion liquidity support spreads. Soft US CPI at 2.4% and 2.8% core raises Fed cut odds but may keep rates high short term; Iran conflict could push oil to USD 100–150, steepening curves. Section 899 risk may widen US spreads; China’s -34% exports raise default risk; ASEAN bonds could widen if trade reverses. Stick with short-duration US Treasuries, 2–5Y IG corporates, Europe IG, Asia IG, select IG EM USD sovereigns (6.5%), and global AT1s (6.0%, 4.9 yrs).
  
  
• DXY to drop from 104.21 to 92.47 by 4Q26; USD/CNY to ease from 7.26 to 7.00; China LPR to fall from 3.10% to 2.55%. SGD 3M SORA dips from 2.36% to 2.10%; US rates drop from 4.50% to 4.00%. EUR/USD rises to 1.20; JPY strengthens to 130.00; ASEAN FX supported by Vietnam’s +36% and Taiwan’s +38.6% exports. Soft US CPI and Section 899 risks weaken USD, supporting SGD. China’s LPR cuts and -34% exports weigh on CNY; India’s rate cuts raise INR outflow risk; MAS policy and 1.3% inflation keep SGD steady. EUR, JPY, CHF, CAD, MYR, THB align with SGD stability.
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• Gold is the safest hedge with low industrial use, >1,000 tonnes central bank buying for three years (vs. 473 avg), 24% higher investor demand in 2024, stable gold-silver ratio near 81.9. Oil could spike to USD 100–150; soft US CPI and 65% Fed cut odds, Iran conflict, SNB/Asia low rates cut gold’s opportunity cost; Trump’s tariff threats lift gold vs. USD. Singapore’s 1.3% inflation keeps global trends key for SGD gold value. Favour gold over silver/platinum, use physical or SGD-hedged ETFs (e.g., SPDR Gold Shares), pick stable producers (Australia/Canada), avoid broad base metals due to China’s -3.3% PPI.

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Resilient global equities are supported by soft inflation and strong tech demand but remain exposed to tariff risks and energy shocks

Soft US Inflation and Strong Tech Drive Resilient Equity Trends

US CPI rose only 0.1% month-on-month in May, below consensus, with headline annual inflation at 2.4% and core at 2.8%, easing immediate pressure on rate-sensitive equities.
 
Fed futures raised the probability of a September rate cut to 65% from 50%, supporting sentiment for growth and quality stocks.
 
Monthly global semiconductor sales exceeded USD 55 billion, highlighting resilient demand for AI, cloud, automotive, and IoT sectors.
 
Europe’s 2025 EPS growth is projected at -0.5% compared to global 7.8% and US 10.7%, while Taiwan’s exports surged 38.6% year-on-year in May, and industrial production rose 22.3% year-on-year in April.
 
Oil prices could spike above USD 100–150 per barrel if Iran conflict escalates, threatening profit margins for energy-intensive sectors.
 
High Energy Costs and Tariffs Continue to Pressure Industrial and Consumer Sectors

The US–China trade framework maintains a baseline 55% tariff on Chinese goods while China keeps 10% tariffs on US goods, pressuring margins for export-focused industries.
 
Trump’s evolving tariff policy and erratic implementation dampen US consumer demand and elevate uncertainty for industrials and discretionary sectors.
 
China’s weak job market, slowing income growth, and negative wealth effect from the property sector weigh on consumer staples, retail, and real estate developers.
 
Europe’s banks benefit selectively from German fiscal stimulus despite weak aggregate EPS growth.
 
ASEAN-6 exporters see near-term gains from front-loading before US tariffs but face risks of demand reversals and supply chain shifts once tighter measures take effect.
 
Defensive Dividend Plays and Structural Tech Remain the Best Equity Bets

In the near term, stay defensive in Asian and European dividend-yielding stocks to provide ballast against elevated risk premia.
 
Long term, technology and AI-related equities remain structurally attractive, supported by monthly global semiconductor sales crossing USD 55 billion.
 
Defence equities in Europe and Japan benefit from increased military spending and robust order books.
 
Asia ex-Japan shows 12.7% EPS growth for 2025 and 12.4% for 2026 with a low P/E of 14.2, supporting select exposure in materials and technology.
 
India’s repo rate cut by 50 bps and CRR reduction by 100 bps inject INR 2.5 trillion liquidity, boosting domestic consumption and financials.
 

​Bond markets offer compelling yields across IG and EM credits, though geopolitical risks, policy ambiguity, and spread volatility require selective positioning

Solid Treasury Demand and Attractive Global IG Yields Underpin Bond Markets
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The 30-year US Treasury auction drew a yield of 4.844% with a 3.1x bid-to-cover, showing strong demand but persistent term premium risk.
 
US investment grade bonds yield 5.2% with an average coupon of 4.4% and maturity of 10.4 years, while Europe IG yields 3.1% with shorter maturity of 5.2 years and coupon of 2.7%.
 
Asia IG bonds yield 4.9% with an average maturity of 7.3 years and coupon of 4.1%.
 
US high-yield bonds offer 7.4% yield and 4.9-year maturity, but face spread widening risk if growth weakens.
 
China’s May CPI at -0.1% y/y and PPI at -3.3% y/y reinforce lower local yields, and India’s RBI repo rate cut by 50 bps with INR 2.5 trillion liquidity injection supports sovereign bond liquidity and tighter spreads.
 
Geopolitical Tensions and Policy Ambiguity Pose Yield and Spread Risks

Soft US CPI at 2.4% y/y and core at 2.8% y/y increase the odds of a September Fed cut, but the Fed may wait for more benign prints, maintaining high policy rates in the short term.
 
Rising Middle East conflict risk could push oil prices to USD 100–150 per barrel, raising headline inflation and steepening yield curves.
 
Section 899 surtax ambiguity keeps risk to foreign-based dollar investments elevated, potentially widening spreads on US sovereigns and corporates.
 
China’s export slowdown of -34% y/y to the US and deflationary drag increase default risk among corporates reliant on external demand.
 
ASEAN export resilience with soft PMIs suggests local currency bonds in Vietnam, Taiwan, and Malaysia may face spread widening if sentiment reverses.
 
Prefer Short Treasuries and High-Grade Credits with Select EM and AT1 Exposure

Maintain conviction in short-duration US Treasuries and 2–5 year investment grade corporates to benefit from safe haven flows and mitigate duration risk.
 
Europe IG corporates with a shorter average maturity of 5.2 years and moderate coupons provide stable carry with lower duration sensitivity.
 
Asia IG bonds yield 4.9% with moderate duration of 7.3 years, supported by capital inflows and steady fundamentals.
 
Selective allocation to investment-grade EM USD sovereigns yielding 6.5% is advisable to capture yield pickup while managing credit risk.
 
Global AT1s yield 6.0% with a short maturity of 4.9 years and can be considered opportunistically for higher returns.
 

SGD remains stable as the USD weakens, while diversification into EUR, JPY, CHF, CAD, and ASEAN FX enhances currency resilience

Weaker Dollar, Firmer Euro and Yen, and Resilient ASEAN FX Support SGD

The DXY is projected to decline from 104.21 in 1Q25 to 92.47 by 4Q26, implying steady SGD appreciation pressure.
 
USD/CNY is seen easing from 7.26 to 7.00 by 4Q26, while China’s LPR declines from 3.10% to 2.55%, supporting stable trade terms for the SGD.
 
The SGD 3M SORA OIS drops from 2.36% to 2.10% by 4Q26, compared to a US rate decline from 4.50% to 4.00%, suggesting a slower narrowing of the SGD’s yield advantage.
 
EUR/USD is forecast to rise from 1.08 to 1.20 through 4Q26, and JPY is projected to strengthen from 149.96 to 130.00, indirectly supporting Asia FX strength relative to the SGD.
 
ASEAN-6 export growth outpaces China’s contraction, with Vietnam’s exports to the US up 36% y/y and Taiwan’s exports up 38.6% y/y, indicating resilient regional currencies relative to the SGD.
 
Soft Inflation and Policy Easing Create FX Volatility but SGD Stays Stable

Soft US CPI at 2.4% y/y and core at 2.8% y/y shift the Fed rate path lower, reducing USD carry appeal and supporting the SGD.
 
Section 899 surtax uncertainty undermines foreign confidence in USD assets, encouraging capital rotation into Asia FX, including the SGD.
 
China’s steady LPR cuts from 3.10% to 2.55% and a 34% y/y drop in exports to the US weigh on the CNY, limiting its appreciation against the SGD.
 
RBI’s aggressive easing, including a repo cut to 5.5% and CRR cut by 100 bps, leaves the INR vulnerable to outflows and policy-driven FX swings.
 
Robust MAS policy and a moderate 1.3% inflation outlook for 2025 support stable SGD liquidity and resilience against regional volatility.
 
Diversify with EUR, JPY, CHF, CAD, and ASEAN Currencies Alongside SGD

EUR/USD is expected to rise from 1.08 to 1.20, offering SGD holders moderate diversification value aligned with European sentiment recovery and fiscal easing.
 
JPY is projected to strengthen from 149.96 to 130.00, supported by BOJ normalisation and carry unwind, providing a safe haven option for SGD investors.
 
The SNB’s possible negative rates and CHF resilience position the franc as a strong capital preservation currency alongside the SGD.
 
CAD remains resilient due to oil supply shocks, with USD/CAD forecast to decline from 1.44 to 1.34, making CAD attractive for commodity hedge exposure.
 
Emerging Asia currencies like MYR and THB benefit from capital inflows and stable trade surpluses, complementing SGD’s regional stability.
 

Gold is reinforced as a core safe haven by geopolitical tensions, easing rates, and strong central bank demand, while base metals face headwinds

Central Banks and Geopolitics Reinforce Gold as the Safe-Haven Core
​
Gold remains the purest safe haven asset with minimal industrial demand exposure, supporting stable value relative to SGD during global uncertainty.
 
Net central bank gold buying has exceeded 1,000 tonnes for three consecutive years, well above the historical average of 473 tonnes, reinforcing strong demand and liquidity.
 
Investment demand for gold rose 24% year-on-year in 2024, and the gold-to-silver ratio stays near its 5-year average of 81.9, indicating consistent relative performance.
 
Middle East conflict could push oil prices to USD 100–150, increasing safe haven demand for gold as an inflation hedge for SGD holders.
 
US headline and core inflation increased by only 0.1% month-on-month in May, and Fed futures now price a 65% chance of a September rate cut, lowering gold’s opportunity cost and supporting SGD-denominated gold demand.
 
Geopolitical Risks, Easing Rates, and Low Inflation Keep Gold Attractive

Rising conflict involving Iran could drive oil prices higher, boosting safe-haven demand for gold and counterbalancing Singapore’s trade deficits from costlier energy imports.
 
A soft US CPI print lifts September rate cut odds, but the Fed may wait due to geopolitical uncertainty, which supports gold prices in SGD as long-term easing weakens the USD.
 
SNB and Asian central banks sustaining low rates reduce gold’s opportunity cost, adding upward pressure on prices.
 
Trump’s evolving tariffs and threats to replace Powell increase global risk aversion, strengthening gold’s role as a store of value relative to the SGD.
 
Singapore’s moderate inflation forecast of 1.3% for 2025 ensures that gold’s local price remains driven by global safe-haven flows and monetary trends.
 
Hold Core Gold, Use SGD-Hedged ETFs, Add Quality Miners, and Limit Base Metals

Favour gold for its safe-haven qualities and limited exposure to industrial demand, despite strong year-to-date gains in silver and platinum.
 
Central bank gold buying exceeding 1,000 tonnes annually validates gold’s resilience and liquidity for SGD portfolios.
 
Maintain core allocation to physical gold or SGD-hedged gold ETFs such as SPDR Gold Shares (GLD) or bullion savings accounts.
 
Select gold producers in stable jurisdictions like Australia and Canada to benefit from global safe-haven flows and low geopolitical risk.
 
Silver offers tactical upside as a secondary inflation hedge, but broad industrial metals exposure should be avoided due to China’s PPI decline of 3.3% year-on-year, indicating weak base metal demand.