Shifting gears in the global defence race

Announcements of increased fiscal spending in Europe
Tariff uncertainty leaves the Federal Reserve on hold
Gold shines bright amid trade tensions and global uncertainty

March has been a month of significant changes in global markets and policies. Gold prices hit record highs as investors looked for safe options during uncertain times, with concerns growing over US trade policies and rising global tensions. In Europe, governments announced major spending plans on defence, showing a shift towards taking more control of their own security as US support potentially lessens. Meanwhile, in the U.S., the Federal Reserve’s cautious decisions reflected concerns about slower growth and rising inflation, keeping markets on edge.

As a result, developed markets’ equities (measured by MSCI World index in EUR) have dropped by 8.01%, while emerging markets’ equities (measured by MSCI Emerging Market index in EUR) have decreased by 3.13%. During the same period the yield on the 10‑year U.S. Treasury bond remained relatively stable, hovering around 4.2%, little changed from 4.23% a month earlier, while German 10‑year Treasury bond yields have risen to 2.73% from 2.39% a month ago.

EU plans to boost defence spending

In March, European governments unveiled ambitious spending plans to strengthen defence capabilities. The European Commission introduced the "ReArm Europe" program, committing €800 billion to defence investment. Countries like Germany and the UK followed suit with increased defence budgets. These initiatives reflect Europe’s move towards taking greater responsibility for its security in response to potentially reduced US involvement. President Trump’s recent decision to pause military aid to Ukraine and his calls for Europe to handle its own defence have pushed European nations to boost their military spending. This shift has also impacted the global defense industry, as US companies like Lockheed Martin face multiple challenges to their business model, leading to stock declines. On the other hand, European defense firms like Rheinmetall AG, BAE Systems PLC, and Thales SA are thriving, driven by heightened expectations for military equipment demand due to increased budgets.

Select STOXX Europe Aerospace & Defense ETF (USD)

Source: Investing.com

Economic growth concerns and the FED recent meeting

The recent correction in the S&P 500, which marked its first 10% decline since 2023, highlights the market's growing sensitivity to economic uncertainty. In March meeting, the Fed maintained interest rates at 4.25%‑4.50% and revised its GDP growth forecast downward from 2.1% to 1.7%, signaling softer economic momentum ahead. These adjustments, combined with inflation projections rising to 2.8% – partly due to tariffs – added to investor concerns. While the Fed announced a slower pace for reducing Treasury holdings to support liquidity, the move offered limited reassurance as broader questions around growth persist. This economic backdrop, combined with renewed tariff‑related pressures and slowing consumer spending, has heightened investor unease, reflected in increased volatility across equity and bond markets. The Fed's careful approach highlights the challenge of managing inflation while supporting growth. These issues keep influencing market trends and causing fluctuations in asset prices.

S&P 500 price index

Source: Investing.com

Precious metals and commodities

In March, gold prices soared to record highs as investors sought safe‑haven assets amid growing uncertainty. Contributing to this trend were concerns over US trade policies, including tariffs on steel and aluminum introduced by the Trump administration, which heightened tensions with allies and raised fears about the impact on global economic growth. Meanwhile, the broader commodities market also saw notable activity, with copper prices climbing due to strong demand as traders move quickly to secure supply ahead of possible U.S. tariffs on the metal. Broader macroeconomic trends are also playing a role. Expected demand from Germany's major infrastructure and military projects, along with economic support in China, is boosting optimism for the metal. These changes show how global trade policies and economic challenges are shaping investor decisions and market trends.

Market view

March brought a mix of developments for global markets as regions adjusted to changing economic and political conditions. In Europe, increased spending plans on defense reflected a push toward greater independence, boosting confidence among investors. In the US, the Federal Reserve's cautious approach to interest rates and slower growth outlook highlighted concerns about inflation and the economy's pace. Overall, market movements were influenced by ongoing geopolitical tensions and evolving policies, keeping investors alert in an uncertain global environment.

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