Macroscope | Why Europe and China are no safe havens from Trump’s chaos

As the first quarter of 2025 draws nearer to a close, it is clear which leading stock market has suffered most from US President Donald Trump’s erratic trade policies. Since February 19, the benchmark S&P 500 index has fallen 7.6 per cent. A gauge of the Magnificent Seven US technology companies, which drove the rally in global stock markets in recent years, is down 15.6 per cent.

Confidence in US exceptionalism – the notion that US assets should be valued more highly mainly because of the dollar’s role as the world’s pre-eminent reserve currency, the country’s huge consumer market and the dominance of US tech companies in global equity indices – has taken a severe knock.

After a long period of complacency about Trump’s aggressive trade measures against US allies, investors are increasingly concerned about the economic damage caused by the onslaught of protectionism. They are even more worried by the Trump administration’s apparent insouciance about the sharp sell-off in stocks and the slowdown in the US economy in recent months. Retail sales in the first two months of 2025 weakened significantly, fanning fears about a slump in consumer spending.

Europe, on the other hand, has been the unexpected outperformer this year. The Stoxx Europe 600 index has surged 10 per cent this year as investors treat Germany’s dramatic decision to inject hundreds of billions of euros into its military and ageing infrastructure as a far-reaching shift in the political and economic governance of the European Union.

The results of the Bank of America survey show that investors’ allocations to euro zone stocks have surged to the highest level since July 2021. A major change in the policy stance has also contributed to a sharp improvement in sentiment towards China. Beijing’s prioritisation of consumption has increased confidence in policymakers’ resolve to boost growth. In the Bank of America survey, a higher share of respondents believed Chinese consumers would save less and spend more.