2025: Q3 Macro Review

Macro Review – Q3 CY 2025

Global Markets

Global equities (MSCI All Country World Index) soared 8.1% in Q3, pushing year-to-date gains to 16.0%. The rally was
fueled by strong earnings, continued AI infrastructure growth, and a dovish US Fed shift. Easing trade tensions and
progress in negotiations broadened risk appetite. Central banks diverged. The Fed cut rates for the first time in nine
months due to weaker payrolls and rising unemployment (4.3%), though underlying US strength persisted,
complicated by inflation. The ECB paused rate cuts after eight consecutive reductions, signaling confidence in
sustained domestic demand.

Despite divergent central bank paths, the JPMorgan Global Composite PMI indicated a broadening global upswing,
with activity accelerating for the fourth straight month. However, China’s momentum slowed due to tariff headwinds
and a struggling property sector. Emerging Markets (MSCI Emerging Markets Index) significantly outperformed
Developed Markets amid a weaker US dollar.

United States

US equities witnessed a strong third quarter, jumping 8.1% and bringing the year-to-date return to a significant
14.8%. Market volatility dropped significantly in Q3. After ten daily +2% swings rattled the S&P 500 in Q2, Q3 saw
zero such events.The rally was fueled by exceptional gains in technology and small-cap stocks. Notably, growth
stocks strongly outpaced their value counterparts. Several key factors propelled the market: a decrease in trade policy
uncertainty, robust economic growth, sustained AI optimism, and Q2 corporate earnings that blew past expectations.
This bullish sentiment persisted despite lingering concerns about inflation, tariffs, and a cooling labor market.

Economic expansion remained solid. GDP grew at an annualized rate of 3.8% in the second quarter, largely thanks to
strong consumer spending. That figure marks a significant rebound from the -0.6% GDP contraction in the first
quarter of the year, making it one of the fastest growth rates since the third quarter of 2023. The Atlanta Fed’s GDP
tracker projects Q3 growth to remain at 3.8%, a considerable increase from its earlier estimate of 3.3%.

Signs of a weakening labor market bolstered expectations for continued Fed interest rate cuts, following the 25 bps
cut in September. The Fed faces a challenge from the unusual mix of solid economic growth, a softening jobs market,
and high inflation, leading to widely differing policymaker interest rate projections for 2025 and 2026. Meanwhile,
the federal government shut down as Republicans and Democrats failed to reach a short-term funding agreement.

Corporate results were a significant tailwind. According to FactSet, second-quarter earnings for S&P 500 companies
climbed a stout 12.0% year-over-year, which was markedly better than the 4.8% forecast on June 30. Looking ahead,
third-quarter earnings are projected to grow by 7.9%.

Within the S&P 500’s 8.1% gain, ten of the eleven sectors were positive. Information Technology was the clear leader
(+13.2%), with Semis & Equipment (+17.8%) and Technology Hardware (+24.6%) surging. Communication Services
(+12.0%) and Consumer Discretionary (+9.5%) were also among the best performers. Consumer Staples was the only
sector to register a loss (-2.4%), with Real Estate (+2.6%) and Materials (+3.1%) underperforming the broader index.
In the quarter, four of the Magnificent 7 delivered double-digit gains, led by Tesla (+40%), Alphabet (+37%), and Apple
(+24%). Despite this, year-to-date leadership still rests with Nvidia (+39%), Meta (+26%), and Microsoft (+24%),
illustrating a shift in market momentum.

Economic data releases were mixed, though the overall picture suggested the economy was holding up well. CPI
annual inflation climbed from 2.7% in June to 3.0% in September, with Core CPI also peaking at 3.0%, keeping prices
well above the Fed’s 2% target. Meanwhile, the unemployment rate rose to 4.3% in August (up from 4.1% in June),
and hiring activity was subdued at 3.2%, the lowest since June 2024. Encouragingly, however, layoffs and initial
jobless claims remained relatively low. The coming months will be critical to see how the Federal Reserve addresses
persistent inflation while maintaining labor market strength.

Treasury yields fell across the curve in the third quarter. This decline was fueled by a weaker labor market, which
prompted the Fed to implement its first rate cut since December 2024. As a result, 10Y and 20Y Treasury yield
dropped about 10 bps, settling at 4.15% and 4.7% respectively.

Forward View: Market highs are supported by strong fundamentals—including solid corporate earnings, averted
tariff risks, and renewed Fed rate cuts. Fed policy will likely dominate headlines again in Q4. Corporate earnings will
draw attention. Earnings have been remarkably resilient this year, and while growth should stay positive in Q4, the
rate of increase might ease. While the rapid gains and high investor optimism suggest a cautious view is needed,
staying disciplined with regular rebalancing to long-term targets is key to managing expected volatility.

The heavy investment cycle in AI continues to be a dominant trend, with massive capital expenditure plans extending
well into 2026. This multi-year spending boom is directly creating significant, sustained order flow for essential
infrastructure and specialized equipment within the US Industrials sector. We believe the Industrials sector is poised
to be a key growth driver for the market going forward.

Europe

European equities gained 3.9% in Q3. The EU and US established a trade framework capping US tariffs at 15% on
most EU goods, easing the region’s trade uncertainty. The Eurozone economy remained resilient. Q2 GDP grew 1.4%
YoY, and business activity expanded modestly in Q3. The HCOB Flash Eurozone Composite PMI rose to 51.2 in
September (a nine-month high), driven by a strong German services rebound offsetting a French contraction.
However, stagnating new orders raised growth concerns, and employment was unchanged after six months of gains.

Despite relatively good data, the ECB held interest rates steady at 2%, though President Lagarde hinted at potential
future cuts due to tariff worries and easing inflation. Norway, Sweden, and the UK cut rates; Switzerland’s remained
unchanged. Annual Eurozone inflation rose to 2.2% (headline) and 2.3% (core). Second-quarter earnings for
companies on the STOXX 600 Index are expected to rise by 4.0% compared to last year, according to LSEG.

The manufacturing sector slipped back into contraction in September (PMI 49.8) as new orders and employment fell,
though input and output prices softened. The services sector strengthened for the fourth month. Economic
Sentiment improved to 95.5 in September from 94.0 in June, on stronger industry and consumer confidence.

Germany (-1.2%): Parliament greenlit the 2025 budget, which utilizes a March fiscal reform to loosen rules, enabling
record economic investments and higher defense outlays. The ZEW Economic Sentiment defied uncertainty from US
tariffs and Chancellor Merz’s “autumn of reform” with a modest September increase.

UK (+7.8%): The economy stalled in July after better Q2 growth. September PMI expansion was the weakest since
May, while headline inflation held steady at an elevated 3.8% in August. This high inflation continues to strain
households, complicates interest-rate cut forecasts, and builds pressure on the government ahead of the November
Autumn Budget.

France (+3.1%): Political shakeup- President Macron appointed defense minister Sébastien Lecornu as the new prime
minister after François Bayrou was ousted in a confidence vote over his unpopular fiscal package.

China

The third quarter highlighted a widening disconnect in China: equity markets advanced significantly (MSCI All China
Index: +20.5%) despite persistent domestic economic weakness in manufacturing, property, and consumption.

This rally was primarily driven by the technology sector, with the Hang Seng Tech Index climbing over 40% (Jan-Sep).
Gains were fueled by AI breakthroughs and Beijing’s push for chip self-sufficiency, aligning government priorities with
investor appetite. Furthermore, easing geopolitical risk—specifically the 90-day extension of the US-China tariff
truce-bolstered sentiment, encouraging flows back into Chinese assets and signaling investor resilience despite
mixed economic data.

China’s GDP growth slowed to 4.8% YoY in Q3 2025, continuing the deceleration from Q2 (5.2%). This slowdown was
driven by weak domestic demand and the ongoing property slump, despite resilient exports. Inflation signals
remained mixed: CPI fell 0.3% (deflation) in September, while core inflation rose to 1.0%, its highest in 19 months.
Manufacturing showed a minor improvement, with the official PMI climbing to 49.8 (still a contraction) in September.

Emerging Markets

Emerging Markets (EM) equities surged 12.5%, with Asia leading the gains, followed by EMEA, and Latin America.

• Asia: he Asian region, excluding China, delivered strong returns of +13.5%, primarily driven by robust global
  demand for AI and semiconductors. Taiwan (+19.6%) saw industrial production surge 14.4% year-over-year in
  August and set a new export record, leading the country to sharply raise its 2025 GDP and export forecasts.Similarly, Korea (+17.3%) reported its factory activity expanding for the first time in eight months, with overall
  exports beating expectations amid strong semiconductor sales.
• India: India’s strong economic performance continued. While the NIFTY 50 faced headwinds and ended the
  quarter with -3.5% return due to FII selling and global uncertainty, the overall market momentum remained
  resilient, driven by robust Domestic Institutional Investor (DII) inflows and strong corporate earnings in core
  domestic sectors. Inflation pressures significantly eased as CPI inflation dropped to an 8-year low of 1.54% in
  September, primarily due to lower food prices. The WPI also softened to 0.13% from 0.52% in August. Given the
  benign inflation outlook, RBI maintained the repo rate at 5.50% (neutral stance). India’s GDP growth forecast for
  FY2025-26 was subsequently revised upward to 6.8%. This revision was supported by robust consumption, strong
  investment activity, a favorable monsoon outlook, and structural reforms like GST rationalisation.
• EMEA: The EMEA region gained +8.4%, supported by domestic economic strength and oil policy. South Africa
  (+17.0%) posted its fastest Q2 GDP growth in two years, led by a rebound in the manufacturing and mining sectors,
  and its central bank cut the main interest rate as inflation slowed. Saudi Arabia (+6.5%) reported Q2 GDP growth
  of 3.9%, largely driven by strong non-oil activity. Regionally, OPEC+ agreed to a modest oil output increase,
  maintaining some stability despite supply concerns.
• Latin America: Latin America delivered +8.2% return in Q3, navigating mixed economic signals and new trade
  policies. Brazil (+6.2%) posted a jump in its trade surplus, but its central bank maintained an ultra-tight monetary
  policy due to signs of resilience and a historically tight labor market, even after an economic activity proxy (IBCBr) fell. Mexico (+10.0%) reduced interest rates by 50 bps to support the economy following a contraction, while
  also announcing new tariffs on Asian imports to aid domestic producers struggling with US tariffs.

Pacific Basin

• Australia (+2.3%): The Reserve Bank of Australia kept interest rates at 3.6% in September, maintaining a datadependent, cautious stance. While core inflation held at 2.6%, headline inflation hit a one-year high of 3.0%—the
  top of the RBA’s target. Governor Michele Bullock noted that accelerating consumer spending (fueled by higher
  incomes, housing, and stocks) could boost growth and reduce the need for rate cuts. Consequently, investors
  pushed back rate cut expectations, with some economists now forecasting no cuts until 2026. The market
  softened slightly; the unemployment rate held steady at 4.2%, but full-time jobs fell, and participation declined.
• Japan (+10.6%): Prime Minister Shigeru Ishiba resigned after the LDP-led coalition lost its parliamentary majority
  in the election. Despite maintaining the rate at 0.5%, the Bank of Japan (BOJ) signaled monetary normalization
  by announcing a plan to gradually unwind its ETF and REIT holdings. Headline and core inflation both hit 2.9%,
  remained above the BOJ’s 2% target. Second-quarter GDP grew 2.2% annualized, significantly surpassing the
  initial 1.0% estimate. However, third-quarter growth was pressured by declining exports in July and August due to
  US tariffs on auto and steel shipments.
• Hong Kong (+11.6%): Real GDP growth is forecast to moderate to approx. +2.4% YoY in Q3 (down from Q2’s
  +3.1%), following the pull-forward of trade in the first half. The unemployment rate rose to 3.9% (Jul-Sep), its
  highest in three years, reflecting a softening labor market. However, inflation remained mild at +1.1% (September), and merchandise exports continued strong (+13% Jan-Aug). The Hang Seng Index surged +11.6% in
  Q3, buoyed by strong capital inflows and tech stocks. Economy remains resilient in external trade and finance.
• Singapore (+9.9%): Private home prices accelerated 1.2% in Q3 (the fastest in nine months) due to lower interest
  rates and developer incentives. The government raised its 2025 growth forecast to 1.5% – 2.5% after Q2 GDP
  rebounded (4.4% YoY), helping the economy avoid a technical recession. However, US tariffs in July and August
  posed downside risks to exports.
• New Zealand (+4.5%): A weak economy increased pressure on the central bank and Prime Minister Christopher
  Luxon, who prioritized economic growth ahead of the 2026 general election.

Commodities

The global commodities market saw strong gains driven primarily by Precious Metals and Energy during the quarter.
Precious metals surged (+17.4%), led by Silver (+28.6%) and Gold (+16.4%), as demand for safe-haven assets rose
amid an uncertain Fed policy path, geopolitical tensions, and a weaker US dollar.

The Energy sector gained (+2.0%), with oil prices rising due to a US-EU trade agreement, a US-China tariff pause
extension, and Russian sanctions threats, though natural gas plunged (-15.1%) on record production. Industrial Metals
climbed (+3.8%), with Zinc (+9.5%) and Copper (+4.1%) benefiting from tighter supplies, higher US tariffs on imports,
and production cut expectations in China, despite a weak performance from Nickel (-0.1%). Finally, Agriculture &
Livestock rose (+3.7%), propelled by a massive surge in Coffee (+29.0%) due to Brazilian dry weather and sharp gains
in Cattle on tight supply and disease concerns, although Corn (-3.2%) and Wheat (-8.2%) declined due to improved
growing conditions and higher inventories.

Currencies

The US Dollar Index recovered 1%, with its upward movement fueled by strong US economic activity (GDP and
consumption) that moderated expectations for an aggressive Fed easing cycle. The Euro (+1.8%) continued to gain
against the USD in Q3, benefiting from a less dovish ECB. In contrast, both the British Pound and Japanese Yen
depreciated (-0.3% and -2.3%), reversing their prior quarter’s gains as a stabilized US Dollar (DXY) regained
momentum. The Indian Rupee saw depreciation of 2.8% due to strong capital outflows.

Market Performance Total Returns (%)