Episode Description:
So far, 2025 has been a year of sharp policy shifts and heightened uncertainty. With volatility becoming the new normal, how can investors stay grounded?
In this episode of The Bid, host Oscar Pulido welcomes back Glenn Purves, Global Head of Macro at the BlackRock Investment Institute, to break down the firm’s 2025 Midyear Outlook. They explore why the long-term economic picture has become less predictable, how mega forces like AI and geopolitical fragmentation are reshaping markets, and what 'investing in the here and now' really means. From the role of private capital in funding infrastructure and energy to the balance between strategic and tactical asset allocation, Glenn shares how investors can find opportunity amid uncertainty—and what risks to watch for in the second half of the year.
Sources: 2025 Midyear Outlook, BlackRock Investment Institute
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
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In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets.
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Oscar Pulido: So far, 2025 has been quite a year for markets sharp US Policy shifts have, at times, made it seem like the world has been upended with volatility and heightened uncertainty. Expect it to be the new normal.
Investors are having to navigate a highly complex and rapidly changing environment. So what can we expect for the rest of 2025, and what opportunities can we be looking for as investors?
Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm your host, Oscar Pulido.
Coming up, I'm pleased to welcome back Glenn Purves, global head of Macro at the BlackRock Investment Institute, to help us look ahead to the rest of the year. We'll explore why the long-term economic outlook has become less predictable, how investors can handle rapidly moving headlines, and how mega forces like AI and geopolitical fragmentation are reshaping economies. We'll also dive into some of the big questions that have arisen about the potential for fundamental changes to the structure of global markets.
Glenn, thank you so much for joining us on The Bid.
Glenn Purves: It's great to be here, Oscar. Thanks for having me.
Oscar Pulido: And welcome back. We've actually seen each other a couple of times this year. You've joined us to talk about market events when we've had volatility. We've been talking about, tariffs and trade policy, and today we're here to talk about the mid-year outlook that the BlackRock Investment Institute has just published. Tell us how you and the BlackRock Investment Institute are seeing the state of the world right now.
Glenn Purves: Sure, happy to, and thanks again for having me. It's been a very unusual first half of the year, I've heard people use different words about it. Upended is the one that, I've heard it and we actually use it in our outlook because so many people have mentioned it. We see it differently, we actually don't see the world as being upended, we see this as an acute manifestation of the transformation that we've been talking about for the last few years. Geopolitical fragmentation, AI, and all these other mega forces, that are transforming the global economy. And, when we look at tariffs and we look at, engagements by NATO in terms of transformations and commitments on defense spending, that's just an extension of geopolitical fragmentation. These are things that are changing the global economy. It used to be that we had a cyclical, adjustment in economies. You had cycles before and now it's structural. In a structural world, you have many different outcomes that can come about.
Oscar Pulido: You touched on things like geopolitical fragmentation and AI, which are some of these mega forces that the BlackRock Investment Institute has talked about for some time, and has described them as structural drivers of return over the long term. So maybe talk a little bit more about these themes and what other themes are there existing in the marketplace that you think can help investors navigate the environment?
Glenn Purves: So, in this outlook, we have three environmental core features.
The first is we've lost long term macro anchors. They've weakened. Things like inflation, volatility much higher than it used to be now. Fiscal discipline ebbing away. Growth trajectories constantly being revised. And even things like compensation investors want for treasuries, is rising away from abnormally low levels that they've been at, and confidence in institutions, we've been hearing a lot of discussion over the last few months about the role of US assets as a safe haven. Why does this matter? Well, historically and before the pandemic, when long-term macro anchors were mostly in place, we saw asset class returns tending to converge back towards longer term averages. You had stable growth, low inflation, supportive monetary policies, and it made it easier to generate returns via static exposures to broad bond and stock indices. And when equity sold off, bonds tended to cushion the blow. And this has changed, equity and bond returns have become more sensitive to short term data as investors try to infer what it means for the near and the long term. And it doesn't mean that investors should trim risk taking. On the contrary, and I think a key bottom line in our outlook is really that this is a great environment for risk taking, but it means that investors need to think differently about how they take risks.
The second is in the near term, structural constraints limit how far and how fast the world can really change. We call these immutable economic laws. I remember talking about it with you back in April. And we identified two of them in our outlook on debt. Debt sustainability relies on steady funding by foreign investors. And foreign investors hold a quarter of US treasuries. We think the 90 day pause on reciprocal tariffs that came about in April was partly due to yield spikes in treasuries. So that's an example of that law in effect. On trade supply chains, can't be rewired quickly without major disruption. Global production is very complex. Trade diversion doesn't happen quickly. And the interdependencies between the US and China, for instance, on production are quite apparent. And so I think that's what led to moving away from embargo level tariffs between China and the US in April, as well as some remissions on key components in electronics, semiconductors, and so forth that we saw. So given the global economy can't be revamped overnight, this allows us to keep taking risk in the near term. And that's a major punchline.
And the third is because we've lost these long-term macro anchors, mega forces step in, in order to provide those durable returns.
And because of them, these three factors, the features we've landed on our three investment takeaways, which are investing in the here and now, taking risk when no macro anchor exists and finding new anchors in the mega forces.
Oscar Pulido: And so Glenn, I think what you're touching on is that in past cycles we had more stability and more certainty about the macroeconomic environment. Things like inflation and growth and interest rates. And now we have a little less stability around some of those variables, but we have more stability and more confidence in themes like AI and infrastructure. and that drives some of the investment decisions that perhaps investors can be thinking about.
I want to talk also about something that the outlook mentions, which is investing in the here and now. Maybe you can talk about what does that mean in practice and what does that mean for the balance between strategic and tactical asset allocation decisions that investors often have to make?
Glenn Purves: So, because of these immutable economic laws, while there's been this uncertainty in the near term, we feel that there are these structural constraints that limit how far and how fast the world can change. So we cut through this uncertainty, that's the key punchline.
And then what it means is we lean in more on the tactical asset allocation. So the six-to-12-month horizon We have greater conviction on, than we would on the strategic because you've lost these longer term macro anchors.
Having said that, because you've lost them, you've got these mega forces that step in and that give you insights, not just in the near term, but also in the long term. And AI is a great example of this, right? when you step back and you think about all the capital spending going on in AI- and it's not just data centers, it's about the energy that is required in order to fuel these data centers and so forth. Those are massive opportunities for both private and public markets. And we're seeing this convergence of private and public blending together in order to find outcomes, investment outcomes that only capital markets can actually do in this environment when governments are so indebted.
Oscar Pulido: You talk about the greater certainty on the short-term horizon than the long-term horizon. So it sounds like greater conviction on investment calls in the next six to 12 months, I think is what you mentioned, but presumably that means you also have to revisit these tactical views more frequently?
Glenn Purves: Yeah, absolutely. We're watching the data the mega forces and all these elements very closely. Not just hard economic data, and not just the soft surveys and so forth, the macro side, but the developments of these mega forces, and it means, You've got to be granular, you got to be more selective. And in particular for the six to 12 months, we're always focused on, updating any tactical views that are based on new information, but we're very, I would say, very disciplined about the scope of what we're tracking. And in particular, AI energy. the geopolitical fragmentation is a big one as well. It covers defense, It covers trade as well, so there is the fiscal component to it, but it's also rewiring of supply chains and looking at how we see these supply chains in industrial production evolving over time. And it's a full hands-on deck sort of effort.
Oscar Pulido: These themes are meant to be longer term, but I'm just curious, we've been talking about these with other members of the BlackRock Investment Institute, Jean Boon, back in, in the beginning of the year when we talked about the outlook, was talking about these mega forces. How do you see them just playing out over the balance of the year? are there some that are higher conviction than others?
Glenn Purves: Yeah, I would say that certainly on the AI side and investments in, data centers, on the energy, that's required to support them, certainly that's one that we put a paper out last year, that focused on the various stages that we're in, it's a great paper but, that's one where we're focusing on and it's private public markets and, because it's huge and because there's a long duration of time in terms of creating these data centers and they're very expensive we see that as something that will continue because we see AI as, evolving and being a key element of global economies going forward. So there's a real structural aspect of that one.
I mentioned geopolitical fragmentation, when you step back and you look at how in particular you look at Europe and the lack of, investment that's gone on in say, defense and in infrastructure and public infrastructure for that matter, and you see how that will help that fiscal impulse that's going to be coming forward will help evolve The European sectors that are involved in those sort of areas. infrastructure, financial sector, defense sector-it's quite profound. And so that's one that we will have to continue to track, but we're also tracking, enablers as well. What are the things that say Europe, I'll continue on the Europe theme, what are the things that Europe is going to be doing in order to strengthen their capital markets? Work on their capital markets Union is one thing. All the other structural adjustments that are needed in order to improve competitiveness, productivity that Mario Draghi set out in his report last year. Where are the advances on that front as well? And I think it's a real inflection point for. For that region. and they have a real opportunity to seize the moment in particular on the back of the NATO agreement that was set out last week. So, it's not just specifically about that one mega force, but also the underlying policies and initiatives that are being pursued that support its development.
Oscar Pulido: Maybe we can go a little bit deeper into geopolitics. In fact, one of the times that you joined us earlier this year was with Catherine Cress. We were talking about, tariffs and trade policy, and Catherine heads up geopolitical research within the BlackRock Investment Institute.
So tell us a little bit more about this mega force. We have fresh conflict in the Middle East, tariffs and trade policy haven't gone away. There's still uncertainty about that, but how should investors think about the political and geopolitical landscape in terms of how it impacts the markets?
Glenn Purves: So we're here, early July and we will take stock of trade, for instance, as one of the elements of that geopolitical fragmentation. And, the 90-day pause on reciprocal tariffs is coming due very soon, because of those immutable economic laws that I set out. Because we can't rewire supply chains at speed without disruption. Because of the US debt sustainability relies on funding for, by foreign investors. we see the administration, we weren't surprised that the administration took a more pragmatic approach to trade policy. In April when we first called out these immutable ECMO economic laws, and we weren't surprised to hear the White House say that they're not going to be a hard set an end date on.
On July 9th, for these 90-day reciprocal tariffs, I think what they're looking for is a path in order to achieve trade agreements and security agreements in certain instances, with countries and their partners on the back of, in particular, a NATO agreement that took place last week. And something that they can feel as sustainable and it meets their objectives. I think there's going to continue to be tariffs in place for sure.
And I think those universal tariffs that have been set out at about 10% probably will be a feature going forward. I think that. the sector specific tariffs, we'll see where they end up. We've got ones on autos, we've got ones on, aluminum and steel right now, semiconductors, pharma, lumber, copper. Those are ones that have been identified, but we'll see whether those are introduced in time and at what levels. and I see those as being there as well for strategic sectors. And I think I said that in April when I was last on. but the reciprocal ones, it, it'll be uncertain as to seeing how that trajectory plays out and whether they go maximalist on that or not. I think that. 'Because of those immutable economic laws, they don't go maximalist.
They look for a pragmatic approach through trade negotiations on some of those. And we're in and around a 15% average effective tariff rate right now. And that's five times higher than they were, beginning of January. And so, in and around that zone seems to be something that perhaps they want to settle in on. But again, this notion of embargo level tariffs, this notion of we could see moments of this, but again, we've got these immutable economic laws that are in place and ultimately what we've seen is, a more pragmatic approach, I think to settling on an outcome that is desirable for the administration.
Oscar Pulido: Glenn, when I listen to your comments, you're clearly acknowledging that there's uncertainty out there, whether it's with trade policy, geopolitics, you mentioned that we've lost some of the anchors that we had in the macro space as compared to prior cycles, but you also mentioned that at the end of the day, you're still pro risk and that there are still investment opportunities to take advantage of in the current environment. So perhaps, what does this mean for investors when they hear all this? What are some of the risks and opportunities that they should be considering in their portfolios?
Glenn Purves: I think, I’ll start here where I started the beginning, right? Which is the number of times people have said to me, it, the world feels upended. But again, like we've been talking about a lot of these transformations now for years. and I could probably go back to, you mentioned Jean being on in, in December, but Jean was probably on a year before that and a year before that, talking about these mega forces, right?
And again, we see this as an acute manifestation of this transformation. and through it all, there's always been amazing opportunities for investors, right? And. When we see more volatility, when we see the kind of conditions that have played out over the last six months, this screams alpha, right?
And it's a great opportunity to go forging for truffles, right? But you got to know what you're doing. And you need to have the frame in order to, in order to navigate through. What feels like near term uncertainty, but actually, structurally as I said is limited in terms of how far and how fast the world can really change. And so the outlook and just, trailing back to this outlook that we've just put out is really about getting the grips on this uncertainty and helping people. Navigate through what feels like an upended world, but in reality is a massively opportune time for investing.
Yeah, I and I think that's a main punchline of this, of the outlook and it's a main punchline of this podcast, which is stay invested, be granular and manage. You have to manage the macro risks.
Oscar Pulido: And part of what you're saying is actually consistent with some of our recent guests who have talked about when volatility goes up, it actually presents a good investment opportunity and that's when there's some excitement for some of those individuals who are finding good opportunities to invest in the market.
And investors need to get a grip on uncertainty. we will certainly welcome you and other members of the BlackRock Investment Institute back to, keep hearing about the transformation that markets are going through. Glenn, thanks for sharing, your views on the midyear outlook, and thanks for doing it here on the bid.
Glenn Purves: Great. Thanks, Oscar for having me, always happy to be here.
Oscar Pulido: thanks for listening to this episode of the Bid. Over the summer, we will be taking a break from our regularly scheduled weekly episodes as we drop our special summer series where our producer, Stevie, and I bring you back, some of our favorite, episodes from the last year. Subscribe and tune in wherever you get your podcasts.
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