It is said that we need the fog to remind us that all in life is not black and white. It is fair to say that the grey mist around markets and economic data right now appears denser than usual.
There are a number of reasons for this, some very specific to the times we are going through. The world’s economy is experiencing some significant distortions in 2025.
First, the air pocket: we saw a slew of orders, hiring and capex plans put on hold in the build up to ‘Liberation Day’ on April 2nd.
According to Apollo, M&A deal count has also fallen to a 20-year low. Then there was the shock of the scale and breadth of the actual announcements with initial tariffs leading to a stalling of international trade with the US almost completely.
Sometime after came a second distortion which we are still in. We had the temporary amnesties and/or tariff reductions to allow for dialogue.
It is said that we need the fog to remind us that all in life is not black and white
This in turn could be leading to an outsized surge in a rush to trade during this window while the tariffs are lower, and to stock up for the months ahead. Air pocket followed by mini-boom?
This is going to play havoc with the data points market participants tend to lean on to plot their way through the fog, but the thickness of the fog right now might cause everyone to slow down.
But to quote novelist Joseph Conrad, “It is not the clear-sighted who rule the world. Great achievements are accomplished in a blessed, warm fog.”
So in essence, now is a good time to put the fog lights on, concentrate hard and plot a way through. You may only see as far as your headlights, but you can make the whole trip that way.
So what are the headlights picking out right now? Although US GDP fell in Q1 in real terms, Q1 corporate results were more robust than expected, albeit guidance was often abandoned.
We have hard economic data softening but share prices rallying. At the time of writing (9 June) the MSCI ACWI is up over 6% but the S&P just over 2% YTD.
In debt markets there are pick ups in early credit cycle measures, and over half of all debt issuance of the last 12 months has come from the US government, with growing Treasury issuance crowding out credit growth.
That is not a good combination typically, perhaps demonstrated by US Sovereign CDS spreads being priced at BBB levels.
‘Liberation Day’ increases the risk of a US and global recession
Other quirks include the pegged HK$ rising to the top of its trading band with the greenback, while yielding 0.1% vs the 4%+ from the US$.
But jobs data is more robust in the US than anticipated, leading to a Fed more hawkish than Donald would like.
Expectations for cuts in 2025 have ranged from zero to two at various points thus far in 2025.
Where does all this leave us? Much of the data I have quoted is from the US but volatility in numbers is a global phenomenon in this peasouper.
But as Benjamin Britten once said, “Composing is like driving down a foggy road.” Great work can come from this when trying to position for the future.
The outlook is always misty but currently, in orchestrating our multi-manager portfolios, we are leaning into Europe and Japan where self-help is more evident in recent months, and slightly away from the US.
You may only see as far as your headlights, but you can make the whole trip that way
Our overweight fixed income exposure is positioned more cautiously than normal, both through our fund choices and overall stance.
This may well be the pool from which we draw should investment opportunities present themselves in equities as a result of not everyone driving with their fog lights on right now. Drive safe.
Rob Burdett is head of multi-manager at Nedgroup Investments
