March Market Commentary 2025
March 2025 saw a dramatic escalation in tensions between the US and the rest of the world as President Trump implemented a 25% tariff on imports from Canada and Mexico, while also increasing tariffs on Chinese goods from 10% to 25%. After a one-month delay agreed in February, these measures came into force on 4th March, with a further global tariff on steel, aluminium, and automotive imports taking effect on 12th March. Equity markets took a notably dim view of the increasing prospects of an all-out trade war, as the S&P 500 (-6.27%) and the Nasdaq (-8.21%) both endured difficult months. This policy shift represents a stark departure from the post-Cold War global consensus, particularly the trade liberalisation framework solidified after China’s 2001 WTO accession. Critics warn the tariffs risk stifling economic growth while fuelling inflationary pressures, potentially ushering in a protracted stagflationary crisis.
There was a notable divergence during the month between the returns of developed and emerging markets. While US returns have struggled year-to-date, Europe emerged as a relative winner as a combination of cheaper equity valuations, inflation consistently below 3%, a central bank focused on easing financial conditions, and the prospect of peace in Ukraine all contributed to a positive backdrop for the continent’s equity indices. However, March still saw the S&P Euro Plus decline by -2.90%, mirrored by the UK’s FTSE All-Share falling -2.75%. In Asia, Japan’s Nikkei 225 dropped by -4.14%, though China’s CSI 300 remained relatively flat for the month, posting a marginal decline of -0.07%. The best-performing major equity market over the period was India’s Nifty 500, which gained +7.34% after facing headwinds since October 2024. This rebound was driven by foreign investors rotating capital into China following the People’s Bank of China’s stimulus announcement, as well as the relatively expensive valuations of Indian equities.
In Europe, the negative index returns occurred despite the German parliament approving a significant infrastructure and spending bill, unlocking a potential €500bn in investment and bypassing constitutional debt constraints. Incoming Chancellor Friedrich Merz stated that the plan was motivated chiefly by “Putin’s war of aggression against Europe”, with lawmakers tacitly acknowledging that President Trump’s disdain for NATO and lack of enthusiasm for continuing to underwrite Europe’s defence also played a significant role. While equity markets remained muted during the month, the major moves were observed in bond markets, as yields on historically stable German government bonds (Bunds) rose across the board. This was exemplified by the 10-year Bund yield increasing from 2.494% on 4th March to 2.896% a week later on 11th March. Critics argue the fiscal loosening undermines Germany’s hard-earned reputation for disciplined economic stewardship – yet it may also herald a transformative phase of German economic leadership in Europe, catalysing growth across the continent.
On 26th March, the Spring Statement was delivered by Chancellor Rachel Reeves. After the profoundly negative reaction to October’s Autumn Budget – where the significant National Insurance increase for employers was poorly received – market participants were keenly watching for any further controversial announcements. Ultimately, the Statement passed without any major issues as Reeves unveiled a £14bn package aimed at repairing public finances, including £3.4bn in welfare cuts. Perhaps most striking was the Office for Budget Responsibility’s sharp downgrade of its 2025 GDP forecast, halving growth expectations from 2% to just 1%. Market reaction was broadly positive, with yields declining in the immediate aftermath—including the 10-year Gilt yield, which fell from 4.761% on 25 March to 4.689% by month-end.
