May 2025

Looking back at May, geopolitics remained a central driver of market sentiment, with fresh uncertainty stirred by President Trump’s high-profile diplomacy and fiscal manoeuvring. His surprise meeting with Syria’s interim president, the unveiling of a controversial tax-and-spend bill, and escalating pressure on the Fed only added fuel to global unease. Combined with intensifying US–China tensions and renewed Middle East instability, these developments framed a month of heightened volatility across global markets. Risk appetite improved on April, with the VIX back down to a more normal level, but nerves remained on edge as investors tried to balance near-term gains with longer-term geopolitical and macroeconomic risks. 

 May was geopolitically volatile. In the Middle East, Israel’s incursions into Gaza continued amid growing international condemnation, while retaliatory strikes in Yemen drew criticism for escalating regional conflict. The UK took the rare step of imposing sanctions on certain Israeli outposts and announced a suspension of trade negotiations, citing humanitarian concerns. Simultaneously, Syria’s reintegration into the international community accelerated. The most dramatic development came with former President Trump’s surprise meeting with Syria’s interim leadership in Dubai, where he advocated for Syria’s inclusion in future peace summits. This was followed by a partial rollback of EU sanctions, signalling a potential thaw in relations with Damascus after more than a decade of isolation.

 In Eastern Europe, tentative steps toward de-escalation emerged. Ukraine and Russia held their first direct peace talks since 2022 in Istanbul, mediated by Turkish and Qatari officials. A large prisoner exchange, involving more than 600 individuals, was seen as a goodwill gesture. However, President Putin’s absence from the negotiations was widely interpreted as a lack of genuine commitment from the Kremlin, casting doubt over the durability of any potential agreement. The talks did little to change the status quo on the ground, but they were seen as a small diplomatic breakthrough in a long-stalemated conflict.

 Asia saw a mix of diplomatic assertiveness and economic caution. China launched a Global Mediation Centre in Hong Kong aimed at resolving regional disputes, presenting itself as a stabilising force amid growing Western disillusionment. However, tensions resurfaced with Australia over its security review of the Darwin Port lease to a Chinese firm, with Beijing accusing Canberra of economic protectionism. In South Korea and Taiwan, defence spending was increased, partly in response to North Korea’s missile tests earlier in the month.

 President Trump remained a disruptive force in both geopolitics and markets. His tariff agenda, first introduced in April, remained central to policy discourse in May. Legal and political resistance, including multiple state-level injunctions and challenges in Congress, delayed implementation of key provisions, now expected to begin in July. In parallel, Trump unveiled a sweeping tax-and-spend bill aimed at infrastructure, defence, and digital innovation. Critics warned that the plan’s lack of offsetting revenue measures would exacerbate long-term US fiscal imbalances. Markets reacted swiftly: US Treasury yields climbed sharply as expectations of wider deficits and higher issuance grew.

 Adding to the unconventionality, Trump’s administration floated a proposal to establish a strategic Bitcoin reserve as part of a broader move to “modernise” US monetary policy. While widely criticised by economists and central bankers, the announcement triggered a surge in crypto assets and reinforced Trump’s image as a wildcard in global finance. Meanwhile, his public pressure campaign on the Federal Reserve intensified. A private meeting with Chair Jerome Powell captured headlines, but the Fed ultimately held rates steady, citing persistent inflationary pressures and robust employment data.

 Against this volatile backdrop, equities staged a powerful recovery. In the US, the S&P 500 gained 6.2% and the Nasdaq surged 9.6%, both marking their strongest monthly performances since November 2023. Markets were buoyed by a federal court’s decision to temporarily block certain Trump tariffs, especially those affecting the tech sector. Strong Q1 earnings, particularly from AI and semiconductor firms, added further momentum. Notably, Nvidia, Microsoft, and Amazon all posted better-than-expected results, bolstering investor confidence.

 Europe followed suit, albeit a touch more muted, with the FTSE 100 closing up 3.3% and the DAX reached a new all-time high of 23,499, supported by improving export data and easing energy costs, to close up 6.7%. Japanese equities were also up with the Nikkei 225 up 7.5%, as the Bank of Japan signalled ongoing support for liquidity, despite persistent yen weakness. China was more muted, with the Shanghai Composite Index up 2.1%.

Commodities presented a mixed picture. Oil prices remained subdued, with Brent slightly down for the month and WTI up 4.4%. Demand concerns, particularly from China and Europe, weighed heavily on sentiment. Gold continued its upward march hitting $3,315 per ounce as safe-haven demand grew in the face of geopolitical stress and rising government debt levels, an increase of 0.8%. Central bank purchases remained strong, particularly from China and India.

In FX markets, the USD underperformed. The Fed’s hawkish pause contrasted with more dovish signals from the ECB and BOE, but investor positioning and fiscal concerns weighed on the greenback. GBP gained ground thanks to strong retail sales data and stubborn inflation, while the euro appreciated on the back of clearer ECB forward guidance and political calm in key member states.

 The wind was firmly behind cryptocurrencies. Bitcoin soared to an all-time high of $111,970 on 22 May, driven by institutional inflows, Trump’s crypto-friendly rhetoric, and Coinbase’s inclusion in the S&P 500, and closed the month up 10.5%; likewise, Ethereum followed. Regulatory noise re-emerged toward month-end, with renewed Congressional hearings on stablecoins and DeFi platforms. Some analysts flagged signs of speculative froth, but broad sentiment remained bullish.