Top 10 Financial Market Forecasts for 2025 by Ayesha Tariq

Join MacroMicro Ayesha Tariq, CFA in a YouTube webinar where she’ll share crucial insights that will shape the financial landscape in 2025. Here are the ten key predictions she’s made for the year ahead:

1. Trump's Trade Policies Heightens Inflationary Pressures In 2025
2. Inflation Leaves Fed With Less Room To Cut Rates
3. Emerging Markets Struggle Under Pressure, Halting Easing Cycles
4. Despite Rising Inflation, A Soft Landing For The US Still Looks Lively
5. Old Economy Stocks Make a Comeback Amid Trump’s Trade Policies!
6. Tariffs Imposed On China Led To Weaker Growth For The Euro Area
7. Softer Economic Outlook For The UK
8. Moderate Growth For Japan As Fiscal Impulse Continues
9. Rising Inflation And Yields Exposes Bonds To Higher Volatility
10. Gold Remains As The Best Commodity To Invest Due To Global Uncertainty

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1. Trump's Trade Policies Heightens Inflationary Pressures In 2025

Ayesha predicts rising inflation due to proposed tariffs and stricter immigration policies. Immigration, which controlled core inflation in 2023–2024, may drive wage inflation as labor shortages tighten job markets. Another surge in inflation could emerge by late 2025 due to these structural shifts and ongoing wage pressures.

U.S. tariffs pose risks to domestic and global growth. Though implementation may take time, their anticipation dampens market activity. Internationally, these policies disrupt global trade, especially affecting export-driven economies. China faces additional tariffs and sanctions, intensifying headwinds. While this benefits U.S. equities, the macroeconomic implications are mixed, balancing risks and opportunities.

2. Inflation Leaves Fed With Less Room To Cut Rates

Because of all the policies that Trump plans to implement next year, especially reshoring initiatives and deregulation, which will increase demand for labor and materials, potentially pushing wage and commodity price inflation higher, Ayesha states that inflation may remain sticky in the first half of 2025, and possibly rise in the second half. If this happens, we can expect:
1. A Stronger US Dollar in 2025 2. Fewer Fed Rate Cuts (2 rate cuts next year instead of 4, with a possibility of a third during the second half if inflation stays in check)

3. Emerging Markets Struggle Under Pressure, Halting Easing Cycles

This situation makes it difficult for emerging markets (EM) to cut rates. If the US Dollar remains strong and the Fed isn't cutting rates, EM countries may have to pause their easing cycles. This is concerning because many of these countries have only just started easing, and without Fed rate cuts and with a strong dollar, they might be forced to delay further action. Some countries, like Brazil for instance, have already started hiking rates again because of the resurgence of inflation. So if inflation gets high enough and the dollar stll remains strong, we might see more hikings in emerging markets.

With this in mind, Ayesha advises taking a more cautious approach when investing in emerging markets, closely monitoring their responses to the Fed's decisions.

4. Despite Rising Inflation, A Soft Landing For The US Still Looks Lively

For 2025, Ayesha believes that global economic growth will start slowing down, while inflation will pick up nearing the end of the year. However, the slowdown is unlikely to reach severe / recessionary levels. Nevertheless, she believes that the US has a high possibility of soft landing and don't expect a global recession.

In the United States, consumer and corporate balance sheets have remained resilient, and debt burden ratios are low. However, inflationary dynamics present new challenges. Inflationary pressures are expected to build due to proposed tariffs and tighter immigration policies. As a result, wages are anticipated to rise, leading to a tighter labor market and higher costs for companies, which could ultimately contribute to higher inflation.

Fortunately, corporate strength, alongside most major companies emerging from an earnings recession, supports a relatively positive growth outlook but a slowdown nonetheless. However, proposed U.S. tariffs still present a potential risk to both domestic and global growth. While these tariffs may take time to implement, their anticipation could dampen market and economic activity before formal enactment.

5. Old Economy Stocks and Bitcoin Resurge Amid Trump’s Trade Policies

Many have linked market volatility and investment shifts to ‘Trump Trade,’ but Ayesha argues the real story is the return of old economy stocks.

The market rally has brought sectors like industrials, utilities, and financials back into focus. For nearly two years, a narrow group of stocks dominated, limiting valuation growth. This broader market leadership is overdue, and Trump Trades could push it further.

Bitcoin surged amid crypto industry deregulation expectations. While positive for mainstream assets, it risks fueling altcoin bubbles. As a more established technology, Bitcoin seems the steadier option for crypto investing. Could it reach $100,000? Resistance around that mark suggests profit-taking. Beyond that, crypto fundamentals are uncertain. Nevertheless, Bitcoin remains a safer bet in the crypto space.

6. Tariffs Imposed On China Led To Weaker Growth For The Euro Area

In terms of the Euro Area, Ayesha believes that growth will remain weak. The tariffs imposed on China through Trump's trade policies have led to a drop in demand, which in turn has slowed down manufacturing in the Eurozone. Additionally, fiscal consolidation efforts and political turmoil, such as the challenges in France with passing the budget, further contribute to the uncertainty. As the growth in the Euro Area remains weak, Ayesha believes this allows the ECB to cut rate 4 times throughout 2025.

7. Softer Economic Outlook For The UK

The UK, however, might be more challenging, as uncertainty weighs heavily on real GDP growth. A weaker currency is likely to elevate inflation through higher import prices. The new budget implemented by the new government also raises concerns as it includes quite a hefty amount of fiscal spending. However, the softer economic outlook is expected to offset inflationary pressures to some extent, leaving the BoE with only 2 rate cuts.

8. Moderate Growth For Japan As Fiscal Impulse Continues

Japan’s growth will moderate but remain positive, supported by continued fiscal impulse and potential strength in domestic consumption following robust spring wage negotiations. Nevertheless, the strengthening yen that is driven by potential BOJ rate hikes and global tariffs are expected to weigh on export-oriented companies, softening overall economic performance. The domestic focus on consumption may provide a partial counterbalance to external challenges.

9. Rising Inflation And Yields Exposes Bonds To Higher Volatility

In terms of bonds, yields have remained elevated, as Ayesha expected. This is not due to strong economic growth, but rather concerns over rising inflation and expectations. Government bonds performed largely in line with expectations in 2024, with yields staying elevated, particularly at the longer end of the curve. This reflected persistent concerns about inflation and fiscal dynamics rather than robust economic growth.

U.S. Treasury yields hovered around 4.4%-4.5% for the 10-year, as markets anticipated eventual rate cuts from the Fed while grappling with ongoing fiscal challenges. She anticipates that bond prices will either fall or remain stagnant, affecting both emerging markets (EM) and developed markets (DM). It’s a key area to watch, as the bond markets could experience significant volatility with every discussion of policy changes, new tariffs, or tax cuts. She also preferred focusing on high-quality corporate bonds with medium-term tenors, rather than government bonds.

10. Gold Remains As The Best Commodity To Invest Due To Global Uncertainty

Ayesha predicts that commodities will face overall pressure in 2025 due to a stronger dollar, with gold being the only exception amid significant global uncertainty. She expects gold prices to remain range-bound, maintaining her $3,000 target for the metal.

Regarding crude oil, she believes the oil market will remain oversupplied in the first half of the year. While demand continues to be lackluster, there may be occasional price spikes driven by geopolitical factors.

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