Doha: QNB predicts a gradual improvement in financial conditions across advanced economies, driven by policy rate easing, narrowing corporate credit spreads, and a favorable equity market environment.

According to Qatar News Agency, QNB’s weekly commentary highlights that the year began with optimism due to a positive economic growth outlook, central bank policy rate cuts, and constructive investor sentiment. Initially, there was significant focus on the direction of the US economy under President Trump’s administration, which began with a strong mandate and a pro-business agenda. This led to optimism, with markets anticipating tax breaks and deregulation, fueling a rally in US equities and the USD.

However, sentiment reversed when President Trump declared Liberation Day on April 2, introducing sweeping tariffs aimed at US economic independence. The financial markets reacted negatively, with rising US Treasury yields and fears of a recession, causing major stock markets to revert to pre-election levels.

QNB anticipates that these market dislocations will be temporary, with financial conditions set to improve. The bank outlines three main factors supporting this outlook. Firstly, central banks in major advanced economies are expected to continue policy rate cuts, reducing global interest rates. In the US, inflation is nearing the 2% target, with weakened economic growth prompting potential Federal Reserve rate cuts. Similarly, the European Central Bank may cut rates due to the disinflation trend and deteriorating growth outlook in the Euro Area.

Secondly, corporate credit spreads are narrowing, indicating improved market sentiment and easier credit access for firms. After a period of high volatility, these spreads have been decreasing, suggesting a more supportive financial environment as trade-war fears subside.

Lastly, stock markets have recovered notably post-Liberation Day, supported by resilient corporate earnings and anticipated monetary easing. In the US, major indices are nearing previous highs, while in Europe, the MSCI Europe Index has performed strongly, aided by Germany’s fiscal policy shift and reduced energy price pressures. Barring significant trade escalations or hard-landing fears, the environment is expected to remain favorable for stocks in advanced economies.