We are in a period where geopolitics would make you run for the hills, while equity and bond performance would suggest that all is well. The FTSE 100 started the year by breaking through 10,000 for the first time and has held steady despite the US President threatening to annex Greenland and thereby calling into question the future of NATO.
Seeking to make sense of this apparent dichotomy it is useful to consider the stories in play and to understand how, despite global tensions, economic factors are providing support for investors.
Greenland, threats and the US dollar
When Donald Trump shocked the world with his “liberation day” tariff announcements of April last year, markets initially crashed, yet quickly rebounded as he softened his position. With Greenland, however, alongside the threat of using military force, Trump proposed a new round of tariffs on selected European exports, including those from the UK. 10% would have been the initial level, but with a further rise to 25% floated. Markets were fearful of this potential, but given Trump’s history of about-turns, they were not convinced he would follow through.
Equities experienced a bad couple of days, but nothing of the sort that will be remembered into the future. Following a successful discussion with Mark Rutte, Secretary General of NATO, the threats of annexation and tariffs disappeared. Given that no firm agreements publicly emerged from these discussions the issue may well resurface, but for now markets have moved on and equities have recovered.
What hasn’t recovered, however, is the US dollar, which is languishing. While there are other factors involved here, Donald Trump’s erratic positioning has weakened the perception of US assets as a safe haven.
Pressure on the Federal Reserve Raises New Risks
Trade tensions aren’t the only source of uncertainty from Washington. The Federal Reserve faces mounting political pressure, as President Trump continues campaigning for lower interest rates.
Fed Chair Jerome Powell is under criminal investigation. This is ostensibly linked to funding of the Fed’s refurbishment, but few see it as anything other than a political power play aiming to assert control over the direction of interest rates. Powell’s term as chair is due to end in May and so political influence is unlikely to significantly affect the remaining impact he can have on the US economy, but many observers see this as a signal to potential successors: loyalty to the president may be as important as qualification.
Over recent decades the independence of central banks has become a cornerstone of economic stability. If markets conclude that the Fed may be unwilling, or unable, to raise rates when needed, inflation expectations could climb and long-term borrowing costs would rise. Although some Republicans in Congress have voiced concerns and may oppose nominees until the investigation into Powell is resolved, the reputational damage to the institution and to markets could linger. This will most likely be seen in weakness for US government debt and in currency markets. This is another consideration in the current dollar decline.
China’s Export Surge: A Mixed Picture
While US factors are destabilising markets, other areas are providing support, with China a strong example, albeit with its own caveat. Despite being one of the primary targets of Trump’s tariffs, China delivered resilient growth last year, with GDP rising 5% in 2025. This strength supports global growth, and has helped drive robust performances across Asian and Emerging Market equities.
The picture isn’t uniformly bright, however. With a trade surplus exceeding $1tn in the first 11 months of 2025, exports have been very important to the Chinese economy, while domestic demand remains soft, with property markets and retail sales sluggish. With vast exports comes political scrutiny abroad, from trade partners who are fearful of the impact on their domestic industrial production. As such, while the growth is welcomed by markets now, a rebalancing of the Chinese economy is required if further trade tensions are to be avoided.
Positive Economic Trends
These are the biggest political stories affecting markets and they paint a mixed picture. Providing a more solidly positive backdrop, however, are economic factors.
Interest rates have fallen significantly since the peaks of early 2024 and as these headline cuts work their way through the wider economy, conditions for businesses and individuals are easing at the margin, meaning profits and consumption are supported. Add to this the stimulatory nature of fiscal loosening – with huge defence and infrastructure spending in Germany, and with tax cuts taking effect in the US, resulting from Trump’s “One Big Beautiful Bill” – and conditions are positive.
There have been question marks over the direction of the US economy, with signs of weakness in the labour market, but with recent growth figures looking strong, and with the tax cuts to come, US GDP seems destined for more success. This is a cyclicality Trump is keen to encourage, hoping to build his popularity with November’s mid-term elections now on the horizon.
Assessing Market Prospects
Against this backdrop, markets in general have been positive, but what are the details within?
Gold has reached new heights, given a falling dollar and geopolitical strife. This has the potential to continue further, but with its value so underpinned by sentiment as opposed to profitability, predicting when this market will turn is highly difficult. Future Money looks at the losses of 2012-16 following the gains of 2009-12 as a reminder of the risks of investing in the commodity.
AI has been the dominant market trend of recent years, but with more questions being asked of their high valuations, investors over recent months have been looking elsewhere, with Asian, European and UK markets all performing well. In the US, with this developing weakness in the tech sector, strategies positioned away from the largest companies have performed well, with ‘equal-weighted’ as opposed to ‘market-cap’ strategies outperforming.
For the investment portfolios managed by Future Money, these trends are fulfilling our expectations and so have been welcome developments for our positioning. The investment process used in these strategies focuses on balanced exposure and an appreciation of value as an important driver in long-term returns. When one particular sector blazes ahead, this can mean the portfolios don’t participate fully, but the aim of this strategy is to deliver relative consistency by carefully managing exposure to those assets with the furthest to fall.
Looking ahead, we expect continued equity strength over the medium term given the fundamental factors of low interest rates and moderate economic growth, even if political factors create risks in the shorter term. Within bond markets, credit spreads are tight, meaning there is little reward for taking risk with lower quality lenders. As such, at Future Money there is a focus on short to medium-term government debt and on high quality corporate bonds, while the team remains wary of those strategies focused on eking out extra returns from high yield (low quality) debt.