Markets & Cycles
FINANCIAL OUTLOOK Q4 2025
9 Oct 2025
Introduction & Overview: Global Markets in Focus
Topics in this Newsletter
Introduction & Overview: Global Markets in Focus
USA: Economic Policy, Tariffs & Capital Flows
Europe: Stagflation, Tariffs, and Opportunities
Debt Implosion and Recommended Actions
The fourth quarter of 2025 shows an increasingly complex situation in the global financial markets. While the world's largest and most liquid markets are not currently sending acute warning signals, there are individual indicators that deserve attention. Particularly noteworthy is the US dollar, which has fallen by more than 10% against the Euro and the Swiss Franc since the beginning of 2025. In parallel, the price of gold, traditionally a crisis indicator, has risen by around 80% in US dollars since the beginning of 2024 (approx. +70% each in CHF and EUR). Since January 2025, the price of gold has again increased by around 40% in USD (+25% in CHF/EUR). Despite these significant movements, the gold market remains relatively small, with an estimated 1% of the global volume of stocks and bonds.
Its significance as a crisis indicator, therefore, lies more in its symbolic function and its psychological effect on investors. Besides precious metals, long-term government bonds have come more into focus in recent weeks. The yields on 30-year government bonds in the USA, France, and Germany are currently rising significantly, against the long-term trend and despite generally falling inflation figures. The only exception is the long-term bonds of Switzerland, which remain stable.
USA: Economic Policy, Tariffs, and Capital Flows
Trump Policy: Strategic from a US Perspective
The US economic policy of recent years, characterized by tariffs, the "America First" approach, and the selective rejection of free trade agreements, is often viewed critically internationally. From an American perspective, however, it is strategically consistent:
The primary goal is not global prosperity or low import prices, but economic independence, maximum domestic production, employment, and stability.
Tariffs act as a fiscal policy instrument: imported goods become more expensive, demand for domestic production increases, and revenues flow directly into the US budget.
Current Account and Budget Deficit
The USA traditionally has a high current account deficit. In 2024, it amounted to USD 1.13 trillion (approx. 3.9% of GDP).
The causes:
Strong consumer behavior and high demand for imported goods, especially electronics, consumer goods, and machinery.
Structural competitive disadvantages in certain industries that have outsourced jobs abroad.
Low savings rates, which reinforce the imbalance between imports and domestic production.
In parallel, the budget deficit rose to USD 1.833 trillion in 2024 (6.4% of GDP). Net interest payments on government bonds amounted to around USD 882 billion, approx. 3% of GDP. The combination of a current account deficit and government debt makes the USA long-term dependent on foreign capital.
Highly Valued Stocks as a Financing Mechanism
The USA currently "exports" not only goods but also hopes and expectations: highly valued tech stocks (Tesla, NVIDIA, Apple) attract foreign investors. These capital inflows stabilize the US dollar, finance consumption and investment, and thus offset parts of the current account deficit.
Europe: Stagflation, Tariffs, and Opportunities
Stagflation in the Eurozone
The European economy is growing only slowly: 0.1-0.3%, just above the recession line. Causes:
US tariffs on steel, aluminum, electric vehicles, and solar technology make market access difficult for European exporters.
High government debt limits fiscal leeway.
Energy prices and supply chain problems are keeping inflation persistently high despite weak growth.
Opportunities for Investors
Falling commodity prices and cheap imports from China could prompt the ECB to cut interest rates.
European mid- and small-caps could benefit disproportionately from an economic recovery.
Stock valuations in Europe remain historically moderate, which offers opportunities for selective investments.
Debt Implosion?
Is a Debt Implosion Looming?
Currently, there are no clear warning signs of a sudden market collapse.
Structural risks are growing: high debt, rising interest rates, overvalued stock markets, and geopolitical uncertainties.
Investors should closely monitor gold, long-term bonds, and the US dollar.
Opportunities for Investors
Falling commodity prices and cheap imports from China could prompt the ECB to cut interest rates.
European mid- and small-caps could benefit disproportionately from an economic recovery.
Stock valuations in Europe remain historically moderate, which offers opportunities for selective investments.
Global Government Debt at a Glance:
USA: 124.3% Debt-to-GDP, interest burden approx. 3% of GDP.
Eurozone: Ø 87% of GDP
Some examples for individual countries (government debt in % of GDP, end of 2024):
Greece approx. 154%
Italy approx. 135%
France approx. 113%
Belgium approx. 104.7%
Spain approx. 101.8%
UK approx. 95%
Rising interest rates increase refinancing costs and raise the risk of capital outflows. In the USA and France, rising yields on government bonds can already be observed—a sign of increasing risk perception.
The currently rising yields on government bonds primarily signal one thing: investors are demanding a higher risk premium for the capital they provide to the state. The most likely reason for this is a declining confidence in the state's ability or willingness to repay the borrowed funds in the long term. Given the enormous debt now present in almost all major economies, it is not surprising that concerns about an open debt haircut, creeping inflation, or financial repression are growing. These factors increase the perceived risk and are directly reflected in the required yields. However, it is important to emphasize that rising yields are not solely due to a loss of confidence. Structural factors, such as an expected sharp increase in investment needs—for example, in the context of the digital transformation—can also lead to a growing demand for capital and thus to higher interest rates. In this context, rising yields reflect both risk aversion and economic scarcities arising from future investment and growth requirements.
Source: Bloomberg. Yields of the respective indices for 30-year government bonds from January 2007 - end of August 2025.