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1. Macro Overview: Trends in the U.S., Europe, China, and South Korea
United States:
The U.S. GDP growth consensus for 2025, as projected by the Federal Reserve, stands at 2.2%, marking a slight downward revision. However, inflation is projected at 2.9%, reflecting growing concerns over stagflation. In terms of real economic indicators, there is a clear divergence between manufacturing and services. The ISM Manufacturing Index for February edged down slightly to 50.3—barely above the expansion/contraction threshold—while the ISM Non-Manufacturing Index (Services) rose to 53.5, indicating robust expansion. This highlights the U.S. economy’s heavy reliance on services and resilient domestic demand.
The Fed held interest rates steady at its March FOMC meeting, preserving policy room in light of external uncertainties. Meanwhile, the Trump administration is pursuing a large-scale budget plan including tax cuts, but internal disagreements within the Republican Party have stalled fiscal stimulus momentum. Overall, the U.S. appears better positioned for recovery, with low manufacturing dependence, limited trade exposure shielding it from tariff shocks, and the potential for monetary easing due to disinflation pressures from slowing growth.
Europe:
The Eurozone’s GDP growth consensus for 2025 is just 0.9%, with no recent revisions, reflecting persistently weak growth expectations. Inflation is at 2.2%, close to the ECB’s medium-term target of 2%, and continues to trend downward. The real economy remains weighed down by manufacturing weakness. The March ZEW Economic Sentiment Index rebounded to 39.8, signaling some recovery in expectations, but January industrial production fell 0.1% YoY, indicating continued contraction. With the Manufacturing PMI still below 50 and sluggish retail sales due to weaker consumer demand, the ECB has paused its rate hikes at a neutral level.
Despite recession fears, further rate cuts seem limited. However, in Germany, there is rising expectation for expansionary fiscal policy following constitutional efforts to ease the “debt brake” and exclude items like defense spending. Overall, despite easing inflation, Europe’s growth momentum remains fragile due to its manufacturing-centric economy, with limited monetary policy space forcing reliance on fiscal measures.
China:
China’s GDP growth consensus for 2025 stands at 4.5%, reflecting relatively solid growth (unchanged from previous forecasts). The government reaffirmed its commitment to stimulus during the Two Sessions, raising the fiscal deficit target to 4.0% of GDP and announcing RMB 1.8 trillion in special bond issuance—marking a shift toward expansionary fiscal policy.
However, signs of disinflation are emerging. February’s CPI fell by –0.7% YoY, indicating subdued domestic demand, while the PPI declined by –2.2%, easing corporate margin pressures. In response, the People’s Bank of China maintained a dovish stance, holding Loan Prime Rates steady in February (1-year at 3.10%, 5-year at 3.60%). Meanwhile, the February Manufacturing PMI rose to 50.2, returning to expansion territory and suggesting the economy may have bottomed. While China’s stimulus is likely to support gradual recovery in consumption and investment in H2, external demand weakness and ongoing U.S.-China trade tensions pose persistent risks.
South Korea:
The GDP growth consensus for 2025 has been lowered to 1.5%, mainly due to weak exports. However, the outlook for private consumption has improved, suggesting relatively solid domestic demand. This year’s export growth forecast is 2.6%, while import growth is expected at 2.5%, reflecting overall subdued global trade.
February exports rose just 0.7% YoY—barely turning positive—and daily average exports remain on a declining trend, indicating lingering uncertainty. The slump in the semiconductor sector has weighed heavily on Korea’s total exports. However, a sharp rebound in chip exports is possible in Q2. According to the Korea International Trade Association’s Export Business Survey Index (EBSI), the semiconductor sector jumped from 64.4 in Q1 to 112.7 in Q2, signaling that the industry may have passed its bottom. This trend mirrors the steep rise in chip exports in Q4 2024 (+34% YoY), followed by a sharp drop to 2.3% in Jan–Feb 2025.
However, if the U.S. enacts reciprocal tariffs in early April, Korea’s exports—especially in semiconductors—could face setbacks, though the impact may be delayed beyond Q2. The Bank of Korea is holding its base rate steady at 3.50% amid external uncertainties and domestic signs of price stabilization. The KRW/USD exchange rate has remained relatively stable at a high level, reflecting tariff concerns and helping support Korean exporters’ profitability.
2. Key Takeaways from Tom Lee Interview: A Positive Tariff Scenario?
Renowned market strategist Tom Lee (head of Fundstrat Research) recently stated in a CNBC interview that the market may be overly pessimistic about the potential for new U.S. tariffs. While many fear tariffs as punitive, protectionist, and recessionary, Lee suggested they could unfold into a positive scenario. If the tariffs are implemented in a reciprocal and negotiated framework, they could benefit businesses by resolving uncertainty and triggering a stronger-than-expected market rebound. Using the metaphor of an “olive branch behind an iron fist,” he argued that the worst-case scenario is not inevitable.
While acknowledging that investor sentiment will likely remain weak and volatility high ahead of the expected April 2 tariff announcement, Lee emphasized that markets often bottom before the actual negative events occur. He cited the 1962 Cuban Missile Crisis, where markets hit their low on the 7th day of the 12-day standoff, rebounding two-thirds of the losses even before the crisis resolved. He believes the current situation may follow a similar pattern—markets stabilizing before the tariffs are finalized.
Lee also noted that recent economic sentiment has deteriorated sharply, citing commentary from executives at Nike and FedEx and pointing to how Trump’s polarizing policies have worsened both consumer and business confidence. While signs of a “growth shock” are appearing—including a drop in CEO confidence and delayed capital spending—he believes these shocks could be “very temporary” if tariff tensions are resolved quickly. Ultimately, the speed at which consumer and corporate sentiment stabilizes will be crucial. If government policy becomes clearer and trade deals turn out to be win-win, the economy could rebound without a recession.
Some experts, such as “Bond King” Jeffrey Gundlach, are more pessimistic, estimating the probability of a recession exceeds 50%, highlighting the current split in Wall Street opinion. However, Tom Lee continues to lean toward the rebound-after-shock scenario.
3. Asset Class Impacts from Tariff Policy and Policy Responses
Equities:
Tariff-related uncertainty is increasing volatility in global equities and weakening risk appetite. Export-heavy markets are especially vulnerable, with Europe and EM economies more exposed to tariff risks. In March, indices like Germany’s DAX and Korea’s KOSPI declined more sharply than U.S. markets. The U.S., with its low manufacturing ratio and strong domestic demand, is relatively insulated. In fact, expectations of Fed easing may support relative strength in U.S. equities. Since mid-March, the S&P 500 has held relatively stable, while the Euro Stoxx 50 declined amid manufacturing concerns. April 2 will be a key turning point. If negotiations result in a positive outcome, global equities could rally—especially tariff-sensitive sectors like semiconductors and autos. U.S. consumer and tech stocks may also benefit from the resolution of policy overhang. However, if a full-blown tariff war erupts, global trade volumes could drop, dragging down cyclical sectors such as energy, industrials, and materials.
Bonds:
Trade conflict risks and growth concerns are boosting demand for safe-haven assets, impacting global bond markets. The Fed held rates steady in March, and Chair Powell left the door open for easing if inflation pressures continue to fade amid uncertainty. This has driven U.S. Treasury yields lower, especially on long-dated bonds, flattening the yield curve. The market is increasingly pricing in Fed rate cuts, with 10-year yields falling from the low 4% range to the high 3% range. In Europe, ECB has paused hikes, and German yields remain low. However, since European policy rates are already neutral, the scope for further easing is limited. In EM bond markets, tariff shocks may hurt sentiment, but central banks could step in with easing, making local government bonds a defensive asset. Overall, tariffs are a downward force on bond yields, boosting prices—especially U.S. Treasuries, which are becoming more attractive as portfolio hedges.
Commodities:
Tariff policies and global economic uncertainty are rippling through commodities. Oil prices have reacted more to oversupply fears than demand. After the China reopening-driven demand surge waned and OPEC+ hinted at possible output increases, WTI fell to the mid-$60 range. Trade tensions and growth concerns are also capping oil prices. Conversely, gold prices have rallied on safe-haven demand, nearing $2,000/oz in March. For industrial metals like copper and aluminum, pre-tariff inventory stocking temporarily boosted prices, but demand worries from prolonged trade disputes have recently triggered corrections. Overall, commodities are being tugged between demand weakness and supply dynamics, with tariffs being a key variable. If tensions ease, suppressed demand could rebound and lift prices. If they worsen, gold could rally further while cyclical resources fall.
Currencies:
The U.S. dollar remains firm amid global risk aversion, while major trading partners’ currencies are under pressure. EM currencies are vulnerable to trade balance concerns stemming from tariffs. The Korean won has remained elevated due to tariff fears, which has ironically helped Korean exporters maintain profit margins. The euro is weak due to stagnant growth and ECB’s policy pause, while the yen is volatile amid speculation about BOJ policy shifts. Overall, the dollar index is likely to stay strong, and EM currencies may remain weak until trade uncertainty clears. Safe-haven currencies like the yen may also see continued support.
4. Weekly Investment Strategy: Defend Now, Position for Rebound
The 4th week of March marks peak uncertainty ahead of the U.S. tariff announcement on April 2. Yet, this also presents opportunities amid policy responses and corporate earnings visibility. Investors should adopt a dual approach—managing short-term risks while preparing for a mid-term rebound. Sunday Research recommends the following weekly investment strategies:
Maintain a defensive stance: Until tariff details are announced and uncertainty fades, it’s prudent to keep portfolios defensive. Slightly reduce equity allocations, raise cash buffers, and tilt equity exposure toward defensive sectors like consumer staples and utilities. For bonds, as discussed, U.S. Treasuries offer solid hedge value under falling rate expectations.
Act, don’t just wait: Recall the lesson that “markets bottom at the peak of fear.” Historically, rebounds begin when sentiment is most bearish. Tom Lee also noted that markets often turn just before investor capitulation. Avoid panic-selling or going all-cash—be ready for upside. Start accumulating high-quality names on dips and gradually normalize equity exposure.
Prepare for aggressive positioning: If the tariff story unfolds positively (e.g., limited rates or successful negotiations), a strong risk-on rally may emerge. Rotate toward growth and cyclicals. Tech—especially semiconductors—looks promising as inventory corrections fade. Korean chip export data suggests a Q2 recovery. Add exposure to global chip leaders (e.g., Philly Semiconductor Index components). Also watch industrials and materials, which may rebound sharply from oversold levels. Regionally, increase U.S. exposure due to relative strength and policy flexibility, while also selectively adding undervalued EM and European assets if sentiment recovers.
Review scenario plans: Prepare for both best- and worst-case scenarios. A worst-case involves the U.S. imposing broad tariffs starting April 2, triggering retaliation and a trade war. If that happens, consider raising cash, gold, and hedges (e.g., volatility-linked products). Conversely, if tariffs are delayed, limited, or canceled, a relief rally is likely—pivot quickly into risk assets. Investors should define their risk tolerance and portfolio rules in advance to act decisively.
VAZ LLC 
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