By:
Chris Carpentier, CFA, FRM, Senior Investment Strategist
Samuel Rudin
Despite rising geopolitical risks, tariff threats, and shifting rate expectations, global markets remain resilient—buoyed by strong fundamentals, easing inflation, and tactical policy pivots across major economies.
What’s striking about this chart isn’t how the lines are reacting—but how they aren’t. Historically, as a safe haven, the US dollar strengthens during volatility spikes. Yet in April, during the initial tariff announcements, that relationship broke down. Instead of rallying, the dollar softened—suggesting a shift in market dynamics worth watching. In addition, the weakening dollar has given a boost to international allocations in local terms.

Geopolitical Volatility and Market Resilience
The past week has been marked by a flurry of geopolitical developments, underscoring the persistent uncertainty that continues to shape the global investment landscape. From sweeping tariff threats to enhanced military alliances, the headlines have been anything but quiet. Yet, amid the noise, markets have shown surprising resilience.
One of the most significant developments is the US Senate’s move to empower President Trump with the authority to impose up to 500% tariffs on any country aiding Russia, including major economies like Brazil, China, and India. This comes alongside discussions to utilize interest from Russia’s seized assets (valued at approximately $300 billion) to support Ukraine’s defense.
In a notable pivot, Trump has announced plans to send Patriot missile systems to Ukraine. While he has criticized the Biden administration’s approach of donating military aid, Trump’s strategy leans toward selling equipment—a move that has garnered support from European partners. NATO, however, is not expected to contribute financially to these arms purchases.
On the trade front, tensions between the US and the EU are escalating. Brussels is preparing retaliatory tariffs on €72 billion worth of US goods in response to Trump’s proposed tariff hike from 10% to 30%. French President Emmanuel Macron is pushing for immediate countermeasures targeting €21 billion in U.S. exports, including soybeans, motorcycles, and orange juice. The EU has already downgraded its 2025 growth forecast from 1.3% to 0.9%, citing the potential economic drag from these tariffs. While Southern European economies may be less exposed due to limited US trade ties, the broader EU outlook remains fragile. Corporate earnings expectations across Europe remain mixed, as reflected in the wide range of 2025 earnings growth forecasts among major markets in the MSCI Europe Index—ranging from a slight decline in the UK (-0.4%) to moderate growth in France (5.2%) and strong gains in Germany (16.8%).
Adding to the complexity, Trump has warned that any EU retaliation will be met with additional tariffs—effectively stacking penalties. Mexico is also in the crosshairs, with Trump citing insufficient action on border security as justification for new tariffs. Further, President Trump has signaled that new tariffs on pharmaceutical imports could take effect by the end of the month, with semiconductors also under consideration for future trade measures.
Offsetting Forces and Market Surprises
Despite this geopolitical turbulence, there are notable counterbalances. Domestically, the recently passed “One Big Beautiful Bill” is expected to provide fiscal support that could cushion the impact of tariffs. Internationally, his willingness to provide military equipment to Europe while also allowing Nvidia to resume chip sales to China may help stabilize key relationships.

Perhaps one of the more surprising developments has been Europe’s market performance. Year-to-date returns are approaching 25% for MSCI Europe in USD terms, driven in part by a weakening dollar along with expectations of increased defense and infrastructure spending. Even when adjusting for currency effects, European equities are still up 11% YTD.
However, this optimism is tempered by a sharp decline in earnings expectations. Forecasts for 2025 earnings growth have dropped from 9% earlier this year to just 2.5% today. This suggests that while markets are pricing in future fiscal expansion, the actual impact on corporate earnings may be delayed.
Much of today’s geopolitical tension is centered around the US One of the clearest signs of dislocation has been the US dollar, which has diverged from historical patterns. As global uncertainties continue, we’ll see whether markets are right to remain relatively calm through the recent noise.
Originally posted on July 18, 2025 on SSGA blog
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