Markets primarily rally on speculations of reduced interest rates in the U.S.
Global Stock Markets Show Resilience Amid Tariff Tensions and Monetary Easing
After a tumultuous Q3 in 2025, marked by US tariff hikes and resulting economic uncertainties, global stock markets have shown signs of resilience in the early weeks of October.
Tariff Impact on Stock Markets and Economic Growth
Early in Q3, global stock markets experienced a notable selloff due to heightened uncertainty around the tariff increases, which resulted in elevated market volatility and economic policy uncertainty reaching record highs. However, markets recovered strongly later in the quarter, supported by a weakening US dollar and resilient corporate earnings.
The tariff hikes enacted in 2025 resulted in the highest average US tariff rate since the 1930s, provoking meaningful headwinds for economies with large trade ties to the US and posing stagflationary risks domestically. J.P. Morgan forecasts that US tariffs could reduce global GDP by around 1%, highlighting the broader drag on economic growth beyond the US itself.
Trade Policy Outlook
Trade negotiations continue to be a key source of volatility and uncertainty, with ongoing but uneven progress in deals with countries such as Japan, Korea, and India, while discussions with China remain mixed. This uncertainty has led to a cautious outlook for equity markets, with J.P. Morgan expecting range-bound performance for the S&P 500, dependent on trade deal developments, volatility levels, and investor sentiment.
Monetary Easing and Stock Market Performance
The Federal Reserve's monetary policy has also played a significant role in the recent market performance. CME's FedWatch tool shows a 94.1 percent chance of the Fed making a quarter-point cut in interest rates at the next meeting in September. This move is expected to further stimulate the US economy and support equity markets.
Stock Market Performance on October 3
On Monday, October 3, London advanced, lifted by banking stocks, with the FTSE 100 closing at 9,128.30, up 0.7 percent. The S&P 500 closed at 6,329.94, up 1.5 percent, while the Nasdaq Composite closed at 21,053.58, up 2.0 percent. However, the Nikkei 225 closed at 40,290.70, down 1.3 percent. The CAC 40 closed at 7,632.01, up 1.1 percent.
Notable performances included Lloyds Banking Group, which jumped nine percent, and Close Brothers, listed on the FTSE 250, which soared more than 23 percent. The Euro/pound rate is down at 87.11 pence, while the Euro/dollar rate is down at $1.1573.
Investor Sentiment
John Plassard, head of investment strategy at Cite Gestion Private Bank, stated that investors are betting on an increased likelihood of further monetary easing by the Fed. This sentiment, coupled with ongoing trade negotiations, is expected to shape the performance of global stock markets in the coming weeks.
Overall, while the US tariffs in Q3 2025 have created significant economic and market headwinds globally, triggering volatility and slowing growth, markets have shown resilience amid ongoing policy developments. As trade negotiations continue and monetary policies evolve, investors will continue to navigate these challenges, seeking opportunities for growth in a dynamic global economy.
Investors are keenly looking towards ongoing trade negotiations and monetary easing policies, especially the Fed's expected interest rate cut, as they shape the future performance of global stock markets. In the aftermath of Q3's tariff-induced turbulence, investors are now focusing on opportunities for growth in the stock market, despite the lingering uncertainties in the global economy. Investing strategies are increasingly being influenced by the prospect of further interest rate cuts and the anticipated results of ongoing trade negotiations.
