From tariffs to tailwinds: Markets bet big on peace and printing presses

On the very day the World Bank sounded the alarm, slashing global growth forecasts and warning of “significant headwinds” from tariffs and uncertainty, markets did what they do best in a liquidity deluge: they climbed the wall of worry like it wasn’t even there. Global equities notched their fifth straight record high, brushing aside the macro gloom like a veteran trader tossing another doom-and-gloom sell-side note into the bin.

London’s FTSE 100 is flirting with all-time highs, Germany’s DAX has already broken through, and on Wall Street, the S&P 500 and Nasdaq are just a couple of decent sessions from rewriting the record books. The rally got an extra shot of espresso from U.S.–China trade optimism, after Commerce Secretary Howard Lutnick claimed talks were going “really, really well”—trader-speak for “buy the rumor, ride the tape.”

The S&P 500 closed within 2% of its all-time high, with Tesla leading the charge like a momentum junkie wired on caffeine. Meanwhile, bonds barely flinched after a hefty $58 billion 3-year auction—the first leg of a three-part duration marathon that culminates with Thursday’s 30-year issuance. Yields barely budged, suggesting markets are willing to absorb supply, at least for now.

But the real rates market litmus test looms: May CPI.

All eyes are on the inflation print, with expectations for a mild +0.16% rise in headline CPI (+2.4% y/y) and a +0.27% gain in core (+2.9% y/y)—almost perfectly in line with the 12-month median. In other words, no surprises, no inflation panic, and nothing standing in the way of summer rate-cut bets. If the data lands on target or softer, it gives the Fed cover to pivot without spooking the hawks. Liquidity is already flowing, risk appetite is high, and this CPI could be the green light bulls need to press the buy button again.

Big corporate deals are back in fashion. Meta’s $15 billion move on Scale AI and the OpenAI–Google cloud tie-up are flashing green lights across Silicon Valley. Confidence isn’t just intact—it’s compounding. Balance sheets are solid, and risk appetite is alive and well. Meanwhile, implied volatility is in a coma, with the VIX and MOVE both in a state of dormancy. After a bout of yield-curve jitters and deficit-driven angst, investors have flipped the switch firmly back to green.

Still, there’s a disconnect brewing. Beneath the rally lies a buffet of macro anxiety: slowing growth, sticky inflation, tariff risk, long-end volatility, fiscal deterioration, and a deflation-sick China dragging its feet. It’s a bearish setup on paper.

And yet... the tape doesn’t care.

That’s because the liquidity firehoses are once again wide open. China just tapped a $1.5 trillion fund to pump cheap mortgages into its zombie housing sector, signalling it's not ready to let real estate rot. Germany and the UK are dialling up spending, with new Chancellor Rachel Reeves set to unleash a £2 trillion multi-year fiscal blitz. And across the pond, Trump’s “big beautiful bill”—a front-loaded tax-slash-and-spend package—is winding through Congress with enough stimulus to keep markets juiced through the summer.

This is why markets are floating on a rising tide of liquidity. And as any seasoned trader knows, when there’s enough cash sloshing around, bad fundamentals can get swept right under the rug. Sure, debt’s ballooning and public finances in the U.S. and UK are cracking—but for now, that’s someone else’s problem. As long as the music plays, everyone’s still dancing.

Layer on top of that the market whispers: both Washington and Beijing are inching toward concessions. The rumoured deal? I’m guessing the U.S. regains access to critical rare earths; China secures a clean path to U.S. energy exports. If even half of that materializes, we’ve got a potent cocktail of policy easing, fiscal sugar, and hope-fueled speculation.

Markets are pricing in a return to a world overflowing with stimulus and devoid of consequences. Any headline from the London trade talks—whether positive or toxic—could shake this rally. But until then, the punchbowl has been spiked with Boost Juice, and the hangover is someone else’s problem.

No surprise, then, that Asian stocks are primed to track Wall Street higher, powered by stimulus indulgence and trade optimism. Momentum's in the driver’s seat, liquidity’s riding shotgun, and fear’s nowhere on the dashboard.

Ride the wave now. Worry about the undertow later.