News and events

05.19.2025

Let's get phys(i)cal

The market has likely entered a new chapter. A softer stance on tariffs from the Trump administration has reduced growth and inflation risks while (re)energizing systemic confidence in the US system.

​​​RATES 

UST
We remain tactically NEUTRAL. We shifted mechanically to NEUTRAL from MODERATELY LONG at the end of April as 10Y UST yields fell below our take-profit level of 4.20%. We still believe the next move will be upward. However, compared to last month, the forces driving this shift have broadened and diversified:

1) Trade tensions are de-escalating rapidly.
2) As a corollary to #1, we believe that concern over de-dollarization have declined significantly among global investors.
3) Building on point #1, we have revised down the projected likelihood of the US economy entering a recession from 45% to 25-30%.
4) Despite being significantly reduced, the remaining tariffs will likely slow the pace of inflation convergence towards the target.
5) We expect the market to turn its attention to the upcoming Budget.
6) While market expectations for the Fed this year have now aligned with both our view and the Fed's, anticipating two rate cuts, down sharply from four at the end of April.

Against this backdrop, we are raising the threshold to begin gradually accumulating exposure to 4.70-4.80% (previously. 4.50-4.60%). However, we think that the risks around this level appear skewed to the upside.

Strategically, we remain CONSTRUCTIVE with a NEGATIVE outlook, as a more accommodative than expected fiscal stance could lead to an increase in the term premium. That said, we believe the strategic outlook remains highly uncertain and may evolve depending on developments in the growth outlook and fiscal policy over the coming months.

Bund
Tactically, we remain LONG and we continue to recommend increasing exposure at 2.70-2.80% and taking profit at 2.30-2.40%.

While recent developments on tariffs may ease investor concerns about their impact on euro area (EA) growth, we still expect EA growth to slow down between Q2 and Q3, as trade uncertainty is likely to persist longer than in China and the UK. Unless the EU agrees on a Trade Commissioner, there is a risk that the US will resort to multiple bilateral agreements, which could prolong the negotiation period and weigh on activity. Meanwhile, the fiscal stance remains growth-neutral this year.
Strategically, we remain NEUTRAL, as the US tariff policy has raised the likelihood of further institutional progress in the EU, particularly in advancing common defence initiatives and the proposed European Union for Savings and Investment.

BTP
In line with our view on Bunds, we remain LONG tactically and continue to recommend adding exposure at 4.0% and taking profit at 3.50%.

Following the decline in BTP spreads over the past month, we believe that without concrete progress on the institutional front in the euro area, further compression of BTP spreads is unlikely in the near term. In the meantime, we expect BTPs to continue closely tracking Bunds.

Strategically, we remain NEUTRAL, as we anticipate that trade-related uncertainty will be balanced by increased EU spending.

EQUITY
We remain tactically NEUTRAL, although we see upside risks increasing. We expect trade tensions to continue easing, US fiscal policy to potentially surprise on the side of further easing, and the US economy to remain resilient, avoiding a recession even in 2025.

Strategically, we reiterate our OVERWEIGHT stance. At this stage, downside risks (such as a recession) and upside risks (including supportive fiscal policy and a potential peak in tariffs) appear balanced. In this context, we favour Cyclicals over Defensives, with a preference for Growth names (previously agnostic). Regionally, we favour the US, which has been among the hardest hit so far, expecting its IT and financial mega-caps to lead the performance, at least during the early stages of the rally.

FX
EUR/USD – Tactically, we turn NEUTRAL (previously LONG and SHORT DXY). US-China negotiations regarding reciprocal tariffs unfolded constructively, with both countries agreeing to a 90-day “truce” and de-escalating tensions. Strategically, we remain NEUTRAL (NEUTRAL DXY), as several conflicting forces keep the USD outlook unusually uncertain.
JPY – Tactically, we turn NEUTRAL (previously LONG). As the US and China have agreed to lower tariffs for 90 days, we expect improved risk sentiment to limit yen gains in the short term. Strategically, we remain LONG as we expect the BoJ to continue raising rates this year, with core inflation remaining above target.
GBP – Tactically, we remain NEUTRAL. As the UK has secured a trade deal with the US, we still believe that growth momentum is likely to decelerate further, as domestic demand softens. The 10% baseline tariffs on UK exports should act as a drag on growth in the coming quarters, as tariffs remain higher than they were before Liberation Day. Strategically, we remain SHORT, as we believe market participants are underestimating the BoE’s willingness to ease monetary policy, given the weak growth and loosening labour market conditions. We continue to project an additional 75bp of cuts in 2025.

FABIO FOIS
Head of Investment Research & Advisory 

CHIARA CREMONESI 
Senior Rates Strategist

COSIMO RECCHIA 
Senior Equity Strategist

FRANCESCO PONZANO 
Junior Equity Strategist

VALERIO CEOLONI 
Senior EM/FX Strategist 




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