Global Macro and Volatility Watch

Global economic growth is decelerating amid escalating trade tensions and policy uncertainty, with markets bracing for heightened volatility in June 2025. The OECD projects global GDP growth slowing to 2.9% in 2025-2026, while equity markets face a precarious balance between fair valuations and mounting risks. Below is an analysis of key drivers and critical events shaping this landscape.

Macroeconomic Headwards Intensify

Trade Policy Drag: Recent U.S. tariff hikes and retaliatory measures could reduce global output by 0.3% within two years. The OECD warns that further trade fragmentation risks disrupting supply chains and exacerbating inflation. China's growth is expected to moderate to 4.7% in 2025, with U.S. growth halving from 2.8% (2024) to 1.6% (2025).

Inflation Dynamics: While G20 headline inflation is projected to ease to 3.6% in 2025, tariff-related cost pressures could complicate central banks' easing plans. The euro area shows modest recovery (1.2% growth in 2026), but wage-price spiral concerns persist despite TUAC's contention that corporate profits rather than wages drive inflation.

June 2025 Volatility Catalysts

Central Bank Bonanza: Seven major rate decisions loom:

These meetings coincide with critical U.S. data releases:

• June 6: Non-Farm Payrolls

• June 11: CPI

• June 27: PCE Price Index

Geopolitical Flashpoints:

• June 15-17: G7 Summit (trade policy coordination)

• June 24-25: NATO Summit (Eastern Europe security)

• Ongoing U.S.-China/EU trade negotiations

Market Positioning and Risks

Equities: The S&P 500 trades at a 3% discount to fair value, but Morningstar warns of "higher-than-average downside risk potential". The VIX volatility index sits at 18.57, below its 2025 average of 21.59, suggesting complacency given:

• Earnings risks from Lululemon, MongoDB, and Dollar Tree

• Trump legal battles impacting trade policy certainty

• 46% of CEOs preparing for recession scenarios

Fixed Income: Higher debt servicing costs threaten fiscal stability, particularly in emerging markets. The OECD advocates monetary easing, while TUAC pushes for public investment in green/digital transitions.

Strategic Implications

1. FX Markets: Favor USD and CHF ahead of rate decisions, monitor JPY if BoJ shifts yield curve control.

2. Equities: Overweight value stocks; tech faces headwinds from tariff-driven supply chain costs.

3. Hedging: Use VIX futures (current: 18.57) to hedge against June event risks.

As OECD Secretary-General Mathias Cormann notes: "Today’s policy uncertainty is weakening trade and investment... preserving rules-based global trade is essential for growth". Investors should brace for turbulence while watching for potential upside from trade de-escalation or diplomatic breakthroughs in Eastern Europe

Strategic Addendum: Navigating June’s Event Cascade

Key Events to Monitor

Central Bank Decisions

1. Federal Reserve (June 18): Focus on the Dot Plot for 2025–2026 rate projections and revisions to inflation forecasts. A median projection of fewer than two cuts in 2025 could trigger a USD rally and equity selloff.

2. ECB (June 5): Watch for guidance on future cuts beyond the expected 25 bps reduction. A commitment to "data dependency" without explicit forward guidance may weaken the EUR, while hints at a September cut could pressure peripheral bond spreads.

3. Bank of Japan (June 17): Any adjustment to yield curve control (YCC) thresholds (currently 1.0% for 10-year JGBs) would signal policy normalization, potentially destabilizing JPY carry trades.

Economic Data Triggers

• U.S. CPI (June 11): A core print above 0.3% MoM could revive bets on Fed hikes, while sub-0.1% might accelerate equity inflows.

• U.S. PCE (June 27): The Fed’s preferred inflation gauge; a surprise above 2.7% YoY would challenge the "transitory" narrative.

• German CPI (June 30): A rebound above 2.5% YoY may harden ECB hawks, complicating rate-cut momentum.

Geopolitical Catalysts

• G7 Summit (June 15–17): Monitor joint statements on China trade restrictions and energy security. Escalated rhetoric on "de-risking" could hit tech and green energy stocks.

• NATO Summit (June 24–25): Defense spending pledges above 2.5% of GDP by member states would buoy aerospace/defense equities (e.g., RTX, Lockheed Martin).

Strategic Considerations

FX Markets

• USD/JPY: A BoJ YCC tweak could propel USD/JPY above 158 (2025 high: 157.89), while Fed dovishness might retreat it to 153 support.

• EUR Crosses: ECB guidance emphasizing "caution" may lift EUR/CHF toward 0.9850, but SNB intervention risks persist.

Equity Sector Risks

• Tech: Tariff-driven semiconductor supply chain disruptions (e.g., ASML, TSMC) could erase Q2 earnings beats.

• Value vs. Growth: Energy and industrials may outperform if NATO commitments boost defense budgets, while AI-exposed growth stocks face multiple compression from higher Treasury yields.

Hedging Opportunities

• VIX Futures: Current contango (June contract at 18.57 vs. July at 20.12) suggests traders pricing in post-Fed volatility. A break above 22.50 would signal panic hedging.

• Gold: A close above $2,400/oz post-NFP would confirm bullish momentum, but Fed hawkishness could trigger a pullback to $2,320.

Critical Thresholds and Triggers

Final Outlook
June’s events are deeply interconnected: softer U.S. inflation could ease Fed pressure, but trade escalations at the G7 might negate gains. Investors should prioritize liquidity and flexibility, using volatility spikes to rotate into oversold assets. As OECD growth projections hinge on tariff resolutions, any breakthrough in U.S.-China talks (next round expected June 20–22) could trigger a 3–5% relief rally in global equities. However, with 46% of CEOs preparing for recession, maintaining defensive exposure to utilities, healthcare, and long-duration Treasuries remains prudent.

Watch for asymmetric risks: Markets are underpricing Black Swan scenarios like a NATO-Russia flare-up or a Trump tariff override via the Trading With the Enemy Act. In this environment, tactical stops and scenario-based hedging will separate resilient portfolios from the rest.