Global Market Cautious Outlook on US Deficit and Rate Cuts Prediction

In the week gone by, global stock markets adopted a cautious stance amid concerns over the expanding US fiscal deficit. In this blog, we’ll know in detail what happened last week (May 19, 2025 to May 23, 2025) all across the globe.

US Passes Tax Cut Bill

The 30-year Treasury yield surged to its highest level since October 2023 after the House of Representatives passed a contentious bill along party lines on Thursday. The legislation, which proposes tax cuts and increased military spending, now awaits Senate approval.

Investors fear it could add nearly $4 trillion to the national debt, according to the Congressional Budget Office, exacerbating the deficit. This fiscal concern coincides with market unease over potential inflation spikes, partly fueled by proposed Trump-era tariffs, which have driven bond yields higher.

Bond Yields Rising Globally

Globally, long-term borrowing costs are climbing, with US 30-year bond yields hitting 5.15%, nearing 2007 levels, and Japan’s yields reaching a record high since 1999.

Bond auctions in both nations saw lukewarm demand, while long-dated bonds in the UK, Germany, and Australia faced selling pressure.

Rise in Business Confidence Level

Business confidence showed signs of recovery in May after a sharp decline in April, described as an “awful April” with confidence levels not seen since the 2022 Truss Budget. The S&P Global Flash UK PMI Composite Output index rose to 49.4 from 48.5, still indicating a slight economic contraction but at a slower pace.

Price pressures eased significantly, and sunny weather boosted some sectors, providing a welcome lift to business activity. These moderated inflationary pressures, alongside faltering economic growth and job losses, suggest central banks may consider further interest rate cuts in the coming months.

Japan’s GDP Growth Fell by 0.7%

Japan’s economy contracted by an annualized 0.7% in the first quarter, marking its first decline in a year, with US tariffs impacting exports.

On Thursday, Japan’s government downgraded its global economic outlook, citing uncertainty over US trade policies. Meanwhile, the People’s Bank of China trimmed the 1-year loan prime rate to 3.0% from 3.1%, and the 5-year LPR to 3.5% from 3.6%.

Indian Stock Market Remained Resilient

Back at home, the domestic market exhibited a cautious yet resilient tone, shaped by a mix of domestic macroeconomic signals and external influences. Domestic macroeconomic indicators played a key role in shaping market sentiment during the week.

Consumer inflation (CPI) for April eased to 4.83%, providing relief to investors anticipating room for a more accommodative monetary policy stance later in the year. However, concerns over persistent food inflation and a marginal uptick in wholesale inflation (WPI) capped gains.

On the growth front, expectations of a healthy Q4 FY25 GDP print-supported by robust services sector activity and resilient manufacturing output lent support to cyclical and large-cap stocks, especially in banking, infrastructure, and auto sectors.

Foreign Institutional Investors (Flls) continued to be net buyers, albeit with reduced intensity, while Domestic Institutional Investors (DIls) provided consistent support on dips, cushioning any sharp downside.

Future Outlook

A normal monsoon forecast is likely to bolster rural demand, supporting sectors like consumer goods and two-wheelers. Investors are advised to monitor sector-specific trends and global developments closely.

So, open Demat account with SMC Global Securities and invest as per your investment objective and risk profile.

Reference:
SMC Global Securities’ Research Team

Author: All Content is verified by SMC Global Securities.