2 min readOptimism remains despite tariffs-related uncertainty
Markets ended the week on a more euphoric note, buoyed by a significant beat in employment data, despite earlier weaker economic growth data. Headline GDP contracted by 0.3%, largely due to a significant drag from exports impacted by U.S. tariffs. While this negative growth figure may appear alarming at first glance, its implications are more nuanced and warrant a more cautious interpretation.
Core GDP—which excludes government spending and trade components to provide a clearer view of private sector activity—rose by 3.0%. Although this is typically a strong signal, some adjustments are necessary this quarter. Notably, a surge in equipment investment likely reflects businesses pulling forward spending in anticipation of incoming tariffs, artificially inflating the figure. This suggests the underlying strength of the economy lies somewhere between the headline -0.3% and the core 3.0% GDP figures.`
The poor headline GDP had at one point dramatically impacted interest rate expectations, futures markets are now pricing in over 86 basis points of rate cuts this year—equivalent to three quarter-point reductions, having corrected slightly following the good payrolls figures. We believe the current data is likely insufficient to prompt the Federal Open Market Committee (FOMC) to cut rates at next Wednesday’s meeting.
The core Personal Consumption Expenditures (PCE) index—the Fed’s preferred inflation gauge—was released this Wednesday and came in above expectations. This limits the Fed’s scope for immediate easing. Still, it’s essential to recognise that inflation is not driven solely by goods. Services, which comprise a significant portion of the index, are showing signs of weakness. With declining foreign tourism and increasingly cautious consumers, further softness is expected in leisure, hospitality, airfares, and eventually housing.
Payroll data significantly exceeded expectations, coming in at 177k compared to the anticipated 135k. This is especially surprising given the recent weakness in survey data and indicates that the economic impact of the swingeing tariffs may take longer than a month to materialize. It also suggests that employers are hesitant to make immediate job cuts, possibly holding out hope that President Trump’s hardline stance will be softened. Both equities and Bitcoin being highly sensitive to tariff newsflow at present.
Digital assets strengthened
Digital asset investment products (ETFs and ETPs) continue to see strong inflows, marking nine consecutive days of gains and over $1.3 billion recorded so far this week. Momentum looks positive for Bitcoin, particularly in the U.S., where the Arizona Legislature has passed a landmark bill authorizing up to 10% of the state’s $87 billion in publicly managed funds to be invested in cryptocurrencies—pending approval from Governor Katie Hobbs. Framed as a strategic hedge against inflation, the bill reflects a broader national trend toward embracing digital assets and aligns with federal efforts to establish a strategic Bitcoin reserve. Meanwhile, the state of North Carolina is also moving closer to approving a similar proposal.
Our latest Digital Asset Manager Fund Survey reflects this evolving sentiment: investor preference for Bitcoin has strengthened post-U.S. election, with 63% of respondents now holding it—a 15 percentage point increase since January. Digital asset weightings have risen to 1.8%, the highest level in a year, driven by both price appreciation and improving sentiment. Institutional allocations have climbed to an average of 2.5%.
Yet, despite Bitcoin’s lower volatility compared to equities, both new and seasoned investors continue to cite volatility as their top concern—highlighting a persistent disconnect between perceived risk and actual market behavior.
