In a surprise move, the Reserve Bank of India slashed policy rates beyond market expectations and shifted its policy stance from accommodative to neutral.
ING Group suggests the RBI’s current action indicates a likely pause in policy adjustments.
However, the possibility of future easing remains open, contingent on potential declines in either growth or inflation.
The cut in interest rates brings the total repo rate reduction by the RBI in the current cycle to 100 bps, resulting in a real policy rate of 2.3%.
The RBI also reduced the cash reserve ratio by a massive 100 bps to 3%, the lowest since 2021.
“The RBI’s rate actions today hint at growing conviction within the Monetary Policy Committee that lower inflation is likely to persist, and that GDP growth remains on a weaker trajectory,” Deepali Bhargava, regional head of research, Asia-Pacific at ING Group, said in a note.
By front-loading rate cuts, the RBI seems keen to ensure the benefits of lower rates reach the economy and that there’s plenty of liquidity to keep things moving.
Not the end of rate cuts
The RBI surprised markets by changing its policy stance from ‘accommodative’ to ‘neutral’.
This shift was particularly unexpected as it occurred only two months after adopting an accommodative position, marking a significant reversal.
“That’s a pretty quick U-turn, and it suggests the central bank might be done with rate cuts for now,” Bhargava said.
Even though CPI inflation remains under the RBI’s target and the real policy rate exceeds the typical comfort level of roughly 1.5%, it paradoxically feels somewhat counterintuitive, according to Bhargava.
She said:
We continue to expect another 25bp rate cut by the RBI this year in the fourth quarter.
The RBI indicates a halt in policy adjustments but retains the option for further easing should economic growth or inflation decline.
It has revised down its consumer price index inflation prediction from 4.0% to 3.7% and maintained its GDP growth forecast at 6.5% for the fiscal year concluding in March 2026.
“Our own GDP growth estimates are slightly weaker than the RBI’s, and with real policy rates still sitting well above historical norms, we continue to expect one 25bp rate cut from the RBI later this year, likely in 4Q,” Bhargava said.
Impact on markets
A solitary interest rate cut today is unlikely to significantly affect the Indian Rupee (INR), according to ING.
This is likely a reaction to decreased inflation rather than an indication of growth worries.
ING anticipates fluctuating market conditions. However, the RBI’s focus on building foreign exchange reserves, a projected GDP growth slowdown due to tariffs and geopolitical issues, should support the currency and likely lead to an upward trajectory.
In the past year, the 10-year bond yield has seen a surge of over 100 basis points.
This increase can be attributed to a combination of factors: diminishing inflation rates and a favorable equilibrium between demand and supply.
“We still think the fundamentals support a further drop in yields, but the pace of decline is likely to be more gradual from here,” Bhargava said.
Given the ample liquidity within the system, the shorter end of the curve is expected to maintain strong support.
Stitch Fix stock price has jumped in the past few weeks as investors bought the dip despite its business facing major challenges. SFIX shares will be in the spotlight on Tuesday when the company publishes its financial results.
Stitch Fix business has faced major challenges
Stitch Fix is an e-commerce company that sought to disrupt the apparel industry using e-commerce and subscriptions. Subscribers receive unique outfits every month, select those that please them, and then return the rest.
Stitch Fix became a highly popular company a few years ago because its business approach allowed for a win-win situation. Customers received unique products monthly and paid for what interested them, and the company made money.
Recently, however, Stitch Fix business has slowed substantially because of the subscription fatigue among customers. As a result, its annual revenue dropped from over $2.1 billion in 2021 to $2 billion in 2022, and $1.59 billion and $1.3 billion in the following two years.
The trend continued in the last quarter, when its sales fell. Its revenue dropped by 5.5% to $312 million, while active clients dropped by 2.6% to 2.37 million QoQ and by 15.5% from the same period last year. It had over 3.28 million in 2023.
The management expects that the business will continue to slow. Its guidance was that its sales in the recent quarter would be between $311 million and $316 million, a 3.6% decline.
Its annual revenue guidance is that revenue will be between $1.225 billion and $1.24 billion, while its adjusted EBITDA will be between $40 million and $47 million.
If these numbers are correct, they mean that the sales will drop by between 8.4% and 7.3% this year.
Why SFIX stock has jumped
Therefore, the Stitch Fix stock price has jumped as investors believe that the company, under Matt Baer, is starting to turn the corner. For one, he has implemented some changes as he refocuses on profitable growth.
For example, he shut down UK operations and continued to improve its cost structure. For example, he removed over $100 million in SG&A last year as he targets profitability in the coming years.
Wall Street analysts expect that Stitch Fix’s annual revenue will be $1.23 billion this year, followed by $1.2 billion next year. They also see the earnings per share moving from $0.3 this year to $0.25 next year.
The company is also monetizing the current customers well as the revenue per active client has jumped to $537, up from $515 last year.
However, the company faces major risks ahead despite making progress. The main risk is that its active customers may continue falling because of the regular deliveries. When you receive clothes per month for so long, chances are that you will have fatigue over time.
The weekly chart shows that the SFIX stock price has remained in a tight range in the past three years. This performance mirrors that of other pandemic winners like Zoom Video and PayPal.
The stock has remained between $2.80 and $5.20 in this period, and is now approaching the upper side.
It has formed an inverse head-and-shoulders-like pattern, a popular bullish reversal sign. It is now nearing the upper side at $5.20.
There are signs that the stock has moved to the accumulation phase of the Wyckoff Theory. This means that it may stage a strong comeback as bulls target the psychological point at $10. The alternative scenario is where it resumes the downtrend and retests the lower side of the channel.
Adobe stock price has moved sideways in the past few days as investors wait for its earnings, which will shed more color on its progress on artificial intelligence. ADBE was trading at $415 on Friday, up by 25% from its lowest point this year.
Adobe earnings ahead
Adobe, the company behind popular software like Photoshop, InDesign, and Lightroom, has underperformed its top peers in the past few years.
Its stock is barely moved in the past five years, while the S&P 500 Index has jumped by 113% and Microsoft has soared by 150% in the same period.
The company’s underperformance is mostly because its growth has slowed, and its investments in artificial intelligence are yet to pay off. Most notably, companies like Figma and Canva have disrupted some of its business.
Therefore, Adobe stock price will be in the spotlight this week as it publishes its quarterly results.
Data compiled by Yahoo Finance shows that the average revenue will be $5.8 billion, a 9.2% increase from the same period last year. In contrast, other top software companies like Microsoft and ServiceNow are growing by double digits.
The average earnings estimate is $4.97, up from $4.48 last year. The highest estimate is that Adobe’s EPS will be $3.9. They also expect the company’s annual revenue to be about $23.4 billion, representing a 9.1% annual growth.
While Adobe issued a weak forward guidance, there are odds that the company’s actual numbers will be better than expected. It has a long record of beating analysts estimates.
The most recent results showed that Adobe’s revenue jumped by 10% in the first quarter to $5.71 billion.
Its cash flow from operations rose to $2.48 billion, while the company continues repurchasing its stock. It bought 7 million shares, bringing its outstanding shares to 435 million, down from 479 million in 2021.
Share repurchases help a company boost its stock by increasing its earnings per share.
ADBE is a cheap stock
Valuation metrics show that Adobe is a fairly cheap company. It has a forward price-to-earnings ratio of 20, a few points lower than the sector median of 22.
Its forward EV-to-EBITDA ratio of 15 is also lower than other companies in the software industry.
The most popular way to value a SaaS company like Adobe is known as the rule-of-40, which looks at its growth and margins. In its case, it has a trailing twelve-month revenue growth of 10.5% and a net income margin of 31%, giving it a multiple of 41.
When using free cash flow, the company has a rule-of-40 metric of 47%, making it highly undervalued. Adobe is cheap because of its slow growth and the fact that it has not succeeded in monetizing its AI tools.
The daily chart shows that the ADBE share price has bounced back in the past few months. It has moved above the upper side of the descending channel that connects the highest swing since September last year.
The stock has also moved above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) and the MACD have pointed upwards.
Therefore, the stock will likely have a bullish breakout, with the next point to watch being at $500. However, a drop below $400 is possible, especially if its financial results come short of estimates.
The Dow Jones, Nasdaq 100, and S&P 500 indices have moved sideways in the past few weeks as the recent momentum stalled. The S&P 500 Index is stuck at $6,000, its highest point since February 24, and 24% above its lowest point this year.
Similarly, the Nasdaq 100 Index has moved to $21,800, up by 31% from its lowest point this year. The Dow Jones Index traded at $42,765, up by 16% from the YTD low. This article looks at the top 3 catalysts for these indices this week.
Dow Jones, Nasdaq 100, and S&P 500
US and China trade talks
The main catalyst for the three indices is the upcoming trade talks between the US and China in London. This meeting was scheduled during a phone call between Donald Trump and Xi Jinpingof China last week.
It comes a few weeks after the two sides met in Switzerland and reached a few important agreements. For example, they agreed to lower tariffs from triple digits to double digits.
Recently, however, China and the US have accused each other of not fulfilling the agreement. China accuses the US of provocations, including suspending students from its universities and export controls on chips.
The US has accused China of continuing to block shipments of rare earth products that are used in the manufacturing process.
Therefore, the Dow Jones, S&P 500, and Nasdaq 100 indices will react to any meeting outcome. They will likely surge if the two sides make progress and potentially a meeting between the two presidents.
Such progress would be notable because the US and China are some of the biggest trading partners in the world.
However, there are signs that China is pivoting its business away from the US, which has become more confrontational. For example, its airlines are no longer buying Boeing jets, and are now planning to order 500 jets from Airbus.
US inflation data
The next key catalyst for the Dow Jones, Nasdaq 100, and S&P 500 indices is the upcoming US inflation data on Wednesday.
Economists expect the data to show that inflation rose a bit, with the headline consumer price index (CPI) rising to 2.5% and the core CPI metric moving to 2.8%.
Signs that inflation is rising will be bearish for the stock market as it will signal that the Federal Reserve will maintain a hawkish tone for a while. This will, in turn, infuriate Donald Trump, who called for a “full point” cut, arguing that the ECB has slashed interest rates ten times.
US stocks do well when the Federal Reserve is cutting interest rates or when it signals that it will do that. The CPI data comes after the US jobs data pointed to a strong economy.
Corporate earnings, Trump and Musk relations, and BBB
The other minor catalysts for the three US indices will be some corporate earnings, Trump and Elon Musk relations, and the Big Beautiful Bill. The only notable companies that will release their earnings are Adobe, Oracle, Chewy, GameStop, J.M Smucker, Stitch Fix, and Core & Main.
Stocks will also react to the ongoing Trump and Musk relations, which hit a record low last week. Musk has pushed harder for Republicans to vote against the Big Beautiful Bill that ends EV mandates and increases government debt.
Elon Musk has a lot to lose as his companies have billions of dollars in government contracts. Therefore, there is a likelihood that he will want to make peace. A deal between the two will be good for the stock market
As stablecoins edge closer to mainstream adoption, a whirlwind of corporate and legislative activity is reshaping the financial landscape in the United States.
On Thursday, Circle Internet Financial made a stunning debut on the New York Stock Exchange, soaring 168% as investors rallied behind the company that issues USDC—the second biggest stablecoin after Tether.
By Friday, Circle’s stock was up another 38%, underscoring the growing investor appetite for digital assets tethered to fiat currencies.
Jeremy Allaire, Circle’s co-founder and CEO, captured the mood in a Bloomberg interview, declaring, “The world has already woken up to the fact that stablecoin money is here to stay.”
Circle’s eye-catching debut arrives just as lawmakers prepare to pass a bill that could overhaul the $250 billion stablecoin market and redefine how digital dollars are used.
That sentiment now seems to be shared by a widening circle of corporate leaders, policymakers, and financial institutions.
Ripple’s RLUSD stablecoin gains traction
Ripple, another heavyweight in the crypto payments space, has quietly expanded its reach.
In December 2024, the company launched RLUSD—a dollar-pegged stablecoin issued on both the Ethereum blockchain and XRP Ledger.
This approval not only integrates RLUSD into Ripple’s licensed payment platform but also authorizes its use by other regulated firms operating in the DIFC.
Ripple’s dual strategy—supporting both crypto-native infrastructure and institutional compliance—highlights the hybrid approach now defining the stablecoin space.
Big banks quietly explore issuing a shared stablecoin
The country’s largest banks—including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo—are reportedly in early discussions to create a jointly issued stablecoin, according to the Wall Street Journal.
These conversations, involving companies like Early Warning Services (the operator of Zelle) and the Clearing House, reflect growing anxiety over losing ground in the rapidly shifting payments landscape.
A unified banking stablecoin would serve not only to preserve incumbents’ influence over the $5 trillion US payments industry but also to compete with emerging crypto-native solutions.
The idea remains in its infancy, but sources say the goal is to develop a token usable across institutions and eventually even outside the banking sector.
Deutsche Bank AG is also examining stablecoins and different forms of tokenized deposits.
Germany’s largest lender is evaluating stablecoin options, which could include issuing its own token or joining an industrywide initiative, Sabih Behzad, Deutsche Bank’s head of digital assets and currencies transformation, said in an interview.
From Uber to Stripe: tech and fintech players test the waters
The momentum is not confined to banks.
At the Bloomberg Tech Summit in San Francisco on June 5, Uber CEO Dara Khosrowshahi revealed that the ride-hailing company is actively evaluating stablecoins as a cheaper, faster method for moving money globally.
“We’re still in the study phase, I’d say, but stablecoin is one of the, for me, more interesting instantiations of crypto that has a practical benefit other than crypto as a store of value,” he said.
John Collison, co-founder of payments giant Stripe, also told Bloomberg in May that the company had begun early discussions with banks about integrating stablecoins into their services.
PayPal, meanwhile, has already taken the leap: its stablecoin, PYUSD, launched in 2023, was used in its first commercial transaction in 2024 to pay Ernst & Young.
The GENIUS Act: Capitol Hill readies first major stablecoin legislation
Adding fuel to the fire is a major legislative milestone. The GENIUS Act—short for “Guiding and Establishing National Innovation for US Stablecoins of 2025”—is expected to pass the US Senate within days.
If enacted, it would provide the first comprehensive federal framework for stablecoin regulation, creating clear rules around issuance, reserve requirements, and consumer protections.
Supporters, including crypto industry players who poured significant funds into election campaigns, say the bill would bring much-needed legitimacy to the market and catalyze institutional adoption.
Christian Catalini, founder of MIT’s cryptoeconomics lab, said the bill could trigger competition between Wall Street firms and crypto startups to issue their own stablecoins.
Some lawmakers express concerns
However, not everyone is on board.
Senator Josh Hawley, a Republican from Missouri, has pledged to vote against the bill in its current form, warning that it hands too much financial control to tech firms.
“It’s a huge giveaway to Big Tech,” he told reporters.
Hawley expressed concern that tech companies could issue stablecoins with limited oversight and then leverage them to expand surveillance of users’ financial behavior.
“It allows these tech companies to issue stablecoins without any kind of controls,” he said. “I don’t see why we would do that.”
These are not unfounded fears.
Facebook’s earlier stablecoin project—originally known as Libra and later Diem—died in 2022 after intense regulatory backlash, including from Federal Reserve Chair Jay Powell, who cited “serious concerns” about the implications for global monetary policy.
The promise and peril of stablecoins
Despite growing institutional interest, stablecoins are not without risk.
Their fundamental appeal lies in their price stability—most are pegged 1:1 to the U.S. dollar or other assets.
Yet history has shown that not all pegs hold.
In 2022, TerraUSD—an algorithmic stablecoin—collapsed, wiping out billions in value and sparking a crisis of confidence in the asset class.
“If the assets backing the coin drop in value and the one-to-one peg falls apart, it could cause the equivalent of a bank run,” warned Darrell Duffie, a finance professor at Stanford, in a CNN report.
There are also practical concerns: users losing access to wallets, a lack of transparency in reserve holdings, and security vulnerabilities still haunt the market.
But these concerns have not dulled the enthusiasm of corporations looking to bypass slow, expensive traditional rails in favor of more agile digital payments.
A turning point for money itself
As Circle’s IPO excitement ripples through Wall Street and the GENIUS Act inches closer to becoming law, stablecoins are no longer on the fringes of finance.
They’re fast becoming one of its most consequential innovations.
What began as a speculative experiment in crypto trading is now poised to reshape everything from remittances and business-to-business payments to how we define and distribute money.
Whether powered by banks, tech giants, or crypto-native firms, the stablecoin era is here, and it’s moving fast.
Tesla Inc (NASDAQ: TSLA) was hit hard Thursday after President Donald Trump signalled plans to terminate Elon Musk’s federal contracts and subsidies in retaliation for his derogatory remarks against the “One Big Beautiful Bill Act”.
And while Trump has already confirmed that he’s not interested in a call with Musk – one that was indicated as likely in a recent report – Fundstrat’s Tom Lee, nonetheless, recommends loading up on TSLA shares on Friday.
According to the Street’s top-ranked strategist, the Trump-Musk feud driven sell-off in Tesla stock has gone a bit too far and has created an exciting buying opportunity for long-term investors.
Why does Lee recommend buying the dip in Tesla stock?
Fundstrat’s head of research expects Tesla shares to resume their upward trajectory in the coming days, primarily because Musk’s recent actions are helping him reconnect with audiences beyond his more right-leaning followers.
This shift could broaden the billionaire’s appeal to more mainstream or moderate Americans, as well as international audiences, Lee told clients in a research note today.
Elon’s actions are now ingratiating him with non-MAGA universe, which is a lot of the USA, and the rest of the world.
In short, the strategist believes that improving sentiment around Elon Musk could have a positive impact on TSLA’s valuation going forward.
TSLA shares shouldn’t be bothered by Trump’s warning
Tom Lee recommends buying TSLA stock on the dip also because Trump’s warning that Musk will lose government contracts was “hollow”.
He dubbed services that the billionaire’s companies provide to the US government, such as satellite launches and clean energy initiatives, as “essential” in his research note on Friday.
Because of their strategic importance, Fundstrat’s strategist sees it unlikely that political tensions alone would jeopardize those contracts, making the threat more rhetorical than realistic.
Following the recent decline, Tesla stock is down nearly 30% versus its year-to-date high.
Other experts have a different view on Tesla Inc
Not everyone is in the same league as Tom Lee on Tesla shares, though.
Ross Gerber, a known TSLA bear and chief executive of Gerber Kawasaki Wealth and Investment Management, for example, says he’s trimming his exposure further to the EV stock following Elon Musk’s “disaster” feud with the US President.
“The board isn’t going to do anything. Nobody’s going to protect Tesla shareholders, and the way you protect yourself is by selling stock,” he argued.
Investors should also note that other Wall Street analysts are not particularly bullish on Tesla stock either. The consensus rating on the electric vehicle behemoth currently sits at “hold” only.
Analysts have an average price target of about $308 on TSLA at the time of writing, which indicates potential upside of less than 3% from current levels.
Lululemon Athletica Inc (NASDAQ: LULU) opened some 30% down on Friday after reporting in-line financials for its fiscal Q1 but leaving investors unsatisfied with the forward guidance.
LULU shares are being punished this morning as the market digests clear signs of slowing growth, especially in its key North American market.
While macro headwinds like tariffs remain a concern, experts believe a bigger problem facing the athleisure giant this year may be saturation in the US and Canada.
Growth is plateauing in its core regions, and Lululemon’s big bet on China as its next engine for expansion may prove to be riskier than initially hoped.
Including today’s plunge, LULU stock is down more than 35% versus its year-to-date high.
LULU shares hit by slowing North American momentum
According to David Swartz, senior equity analyst at Morningstar, Lululemon saw weakness in its North American comparable sales in the first quarter as the retail giant has already reached maturity in the region.
“LULU already has stores in all major metropolitan regions in the US and Canada. It was almost a certainty that it would not be able to post the same kind of growth rates that it had in the past.”
Lululemon stock’s recent performance suggests it’s grappling with a combination of increased competition from brands like Alo Yoga and Vuori, and internal challenges, including a shakeup in its design leadership.
After the departure of its former head designer last year, the athletic apparel company has been navigating a transitional period that may have impacted product innovation and merchandising, Swartz argued in an interview with Yahoo Financeon Friday.
Lululemon stock faces risk in China expansion strategy
To counter the flattening growth at home, Lululemon has turned its attention abroad, especially to China, where it’s been rapidly opening new stores.
But the bet on China is looking increasingly precarious amid ongoing economic turbulence.
“China is a troubled market right now,” Swartz noted, pointing to weak consumer sentiment, high youth unemployment, and soft results across the apparel sector as warning signs.
While Lululemon’s brand awareness and market share in China remain low, leaving room for expansion, current conditions suggest that international growth may not accelerate fast enough to offset domestic stagnation.
All in all, the Morningstar analyst agreed Lululemon remains fundamentally well-positioned despite tariff-related headwinds, thanks to its pricing power and relatively limited manufacturing exposure to China.
However, he cautioned that the stock is unlikely to recover meaningfully unless the company either reignites growth in its core Americas segment or identifies a high-growth international market to scale into.
Still, Swartz maintains a $315 fair value estimate for the stock, implying roughly 20% upside from current levels.
That suggests the sharp post-earnings selloff may have been overdone, even as near-term challenges persist for the Vancouver-based athleticwear brand.
LionTrust fund manager, Storm Uru says some of the most compelling opportunities for investors in search of durable growth amidst persistent macro uncertainty may be in the private equity space.
According to Storm Uru, recent pullback in private equity stocks like Blackstone Inc (NYSE: BX) and Apollo Global Management (NYSE: APO) spells opportunity for long-term investors to build a position in those sector giants at a discount.
In his recent interview with CNBC, Uru dubbed BX and APO as standout buys for the back half of 2025, given their structural potential in infrastructure, data centers, and computing.
Why is LionTrust bullish on Apollo Global stock?
Apollo remains a key player in the alternative investment landscape, with a strong focus on credit, real assets, and retirement services.
Uru favours owning APO on its pivotal role in enabling capital-intensive infrastructure growth, particularly around data centre expansion and compute capacity, sectors expected to see massive funding over the next decade.
“Over the next 10 years a significant amount of capital is needed to build out these assets,” Uru said, pointing to the long-term funding gap in digital infrastructure.
Apollo’s unique combination of asset management and permanent capital gives it both stability and scale, making it well-positioned to benefit from global structural shifts.
LionTrust’s fund manager remains bullish on Apollo Global stock even though the asset manager reported weaker-than-expected earnings for its fiscal Q1 last month. Its revenue also came in down 21% on a year-over-year basis at the time.
Additionally, APO shares remain unattractive for income investors as they do not currently pay a dividend.
Why is Storm Uru bullish on Blackstone stock?
Blackstone, the world’s largest alternative asset manager, also earns a spot on LionTrust’s buy list.
The firm’s diversified exposure across private equity, real estate, infrastructure, and credit allows it to capitalize on multiple macro trends, including rising demand for digital infrastructure and private credit.
“The long-term structural case for these companies is really exceptional,” Uru noted. Despite recent weakness in its share price, Blackstone’s underlying business remains robust, with strong fundraising capabilities and deep institutional relationships, he added.
Uru believes BX will be instrumental in funding the next generation of compute and data center buildouts, sectors poised for multi-year investment cycles, making Blackstone stock worth owning for those who believe in the continued growth of private markets.
Finally, he recommends owning Blackstone shares for the strength of the company’s financials. In April, the asset manager acknowledged potential disruption due to Trump tariffs but reported Q1 profit that handily topped Street estimates.
Note that BX shares currently pay a healthy dividend yield of 2.89%, which makes them all the more exciting to own for those interested in setting up an additional source of passive income.
The International Monetary Fund (IMF) has issued a stark warning that the ongoing global trade war presents a more formidable challenge to emerging market central banks than the COVID-19 pandemic.
As trade tensions escalate, particularly with the imposition of historically high tariffs by the United States, emerging economies are grappling with complex economic shocks that threaten growth, inflation, and financial stability.
This warning comes at a time when many of these nations are still recovering from the lingering effects of the pandemic, making the current crisis even more perilous.
According to IMF officials, the differential impacts of trade tariffs create unique policy dilemmas for central banks in emerging markets, complicating their ability to respond effectively.
The current trade war, largely driven by U.S. policies under President Donald Trump, has seen tariffs reach levels not witnessed in a century.
In April 2025, the IMF reported that these tariffs are significantly dampening global economic growth, with forecasts for the United States slashed from 2.7% to 1.8% for the year.
The ripple effects are felt worldwide, but emerging markets—economies like India, Brazil, and Thailand—are particularly vulnerable due to their reliance on global trade and foreign investment.
Unlike the COVID-19 crisis, which prompted synchronized global monetary easing, the trade war introduces asymmetric shocks, where some countries face inflationary pressures while others grapple with deflationary risks.
Why trade war trumps COVID as a threat
During the COVID-19 pandemic, central banks in emerging markets were able to implement rapid policy responses, such as slashing interest rates and injecting liquidity into their economies.
The crisis, while severe, had a somewhat uniform impact globally, allowing for coordinated action.
In contrast, the trade war’s effects are uneven, creating a patchwork of economic challenges.
IMF First Deputy Managing Director Gita Gopinath emphasized in a recent statement that tariff shocks make policy responses tougher for emerging markets.
For instance, countries heavily reliant on exports to the U.S. or China face declining demand, while others dealing with imported inflation due to higher costs of goods struggle to balance growth and price stability.
This complexity, according to the IMF, renders the trade war a ‘greater challenge’ than the pandemic for these central banks.
Implications for emerging market central banks
The policy dilemmas facing emerging market central banks are multifaceted.
Raising interest rates to combat inflation risks stifling economic growth, particularly in nations with high levels of debt.
Conversely, lowering rates to stimulate growth could exacerbate currency depreciation and capital outflows, especially as the U.S. dollar strengthens amid trade tensions.
The IMF has warned that these central banks face ‘rising uncertainty and uneven impacts,’ making it difficult to chart a clear path forward.
Moreover, the trade war exacerbates existing vulnerabilities in emerging markets, such as elevated debt levels and tightening financial conditions.
The World Trade Organization (WTO) also cut its 2025 global merchandise trade growth forecast to a decline of 0.2% from a previously expected rise of 3.0%, signaling severe spillover effects if retaliatory tariffs intensify.
The broader global economic outlook adds another layer of concern for emerging markets.
The IMF’s latest forecasts indicate slower growth and higher inflation in the U.S., while China faces deflationary pressures due to tariffs.
The IMF has cautioned that without concerted global efforts to de-escalate trade tensions, the economic fallout could deepen, with emerging markets bearing the brunt of the damage.
The Organisation for Economic Co-operation and Development (OECD) has delivered a sobering update on the United Kingdom’s economic outlook, significantly lowering its growth forecast for 2025 and 2026.
In its latest reports, the OECD cites escalating trade tensions, heightened policy uncertainty, and mounting fiscal pressures as key factors undermining the UK’s economic prospects.
The UK economy has been navigating a complex landscape since the aftermath of Brexit, the COVID-19 pandemic, and subsequent inflationary pressures.
While the country saw some recovery in 2024, with global growth remaining resilient as reported by the OECD, recent indicators point to a slowdown.
Details of the revised UK growth forecast
According to the OECD’s latest analysis released in early June 2025, the UK’s economic growth is expected to slump to just 1% in 2026, a sharp downgrade from previous projections.
This follows a year of already subdued growth in 2025, impacted by a combination of domestic fiscal constraints and external trade barriers.
The OECD highlights that the UK’s public finances are in a precarious state, with high interest payments on government debt and limited financial buffers to absorb further shocks.
OECD is warning of a ‘very thin’ fiscal margin, leaving little room for error.
Trade tensions, particularly stemming from increased barriers and tariffs globally, are another critical factor.
The OECD notes that substantial increases in trade restrictions—exacerbated by policies in major economies like the United States—could have a marked adverse effect on the UK’s export-driven sectors.
As a nation heavily reliant on international trade, the UK is particularly vulnerable to disruptions caused by policy uncertainty and rising costs associated with new tariffs.
Implications of trade tensions on the UK
The intensification of global trade barriers poses a direct threat to the UK’s economic stability.
The OECD’s June 2025 report warns that if current tariff rates persist or escalate, they will dampen growth prospects not only in the UK but across the global economy.
For the UK, this is compounded by post-Brexit trade arrangements that have already introduced friction with the European Union, its largest trading partner.
Higher trade costs are likely to fuel inflationary pressures, which could force the Bank of England to maintain or tighten monetary policy, further stifling growth.
Businesses in the UK are already feeling the strain, with falling confidence reported amid uncertainty over future trade policies.
The OECD cautions that without international cooperation to reduce barriers, the UK could face a prolonged period of economic stagnation, impacting jobs, investment, and consumer spending.
Fiscal pressures and policy challenges
Domestically, the UK government faces what the OECD describes as a ‘horrible fiscal bind.’
High levels of public debt and rising interest payments limit the government’s ability to stimulate the economy through spending or tax cuts.
In fact, the OECD has suggested that measures such as raising council tax or closing tax loopholes may be necessary to shore up revenue, a recommendation that has sparked debate among policymakers and the public.
This poses political challenges for Chancellor Rachel Reeves, who must balance fiscal rules with public expectations.
The OECD also warns that without a credible fiscal path to ensure debt sustainability, the UK risks further economic instability.
This could include potential downgrades in credit ratings or increased borrowing costs, both of which would exacerbate the current slowdown.
The combination of fiscal constraints and external trade pressures leaves the government with limited options to address immediate economic weaknesses.
Broader global context and risks
The UK’s challenges are not occurring in isolation. The OECD’s global outlook highlights a weakening economic environment, with risks including geopolitical tensions and potential disruptions in financial markets.
For the UK, these global uncertainties add another layer of complexity, as any sharp slowdown in major economies like the US or China could further impact demand for British goods and services.
Inflation, while easing in some regions, remains a concern, and trade-related cost increases could delay a return to target levels in the UK.
