MacroWatch (October 2025)

Key global macro cycles driving financial markets

This is an abridged version of the full report.

The full report is available at:-

https://www.flipsnack.com/779CBEB569B/macrowatch-25-october-2025

Executive Summary

This report provides a summarized analysis of three critical macro-financial cycles driving global markets: the US growth cycle, the global trade cycle and the global monetary policy divergence.

The US economy is demonstrating notable resilience, with a growth slowdown that appears to have stabilized. Underlying strength in consumption and a recalibrated labor market, adjusted for lower migration, paint a more robust picture than headline figures suggest. However, a federal government shutdown entering its third week as of October 19, 2025, poses a near-term headwind, with estimated costs of $15 billion per week in lost economic output. While most shutdown effects are expected to be temporary, the political impasse underscores deeper fiscal dysfunction.

Concurrently, the global trade cycle significantly outperformed expectations in the first half of 2025, propelled by a structural boom in AI-related goods, temporary import frontloading ahead of tariff hikes, and vigorous growth in South-South trade. However, the outlook for 2026 appears markedly weaker as policy headwinds and inventory unwinding are expected to take effect. The AI investment boom, while contributing 1.1% to US GDP growth in H1 2025 and driving $342 billion in hyperscaler capital expenditures, exhibits characteristics of both structural transformation and speculative excess, with enterprise adoption lagging infrastructure buildout.

The primary risks common to all three cycles are elevated policy uncertainty—encompassing threats to central bank independence (particularly in Japan and potentially the US), fiscal dysfunction (evidenced by the government shutdown), and escalating trade restrictions—while the AI revolution presents a significant but uncertain source of medium-term growth. Financial markets must navigate cross-currents from divergent monetary policies, the unwinding of temporary trade distortions, and the tension between AI’s transformative potential and bubble-like investment dynamics.

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