Economic growth is projected to remain resilient in 2025. The anticipated tariff increases by the new U.S. administration are expected to have a limited impact on global growth, primarily affecting the U.S. more than other regions. These tariffs may act as a negotiation tool while creating room for China to introduce fiscal stimulus aimed at boosting domestic consumption.
Geopolitical risks remain elevated, with potential for an escalation in the Russia-Ukraine conflict. Additionally, rising tensions in the Middle East could lead to regional conflict, posing risks of substantial oil supply disruptions.
In the U.S.: Robust growth at 3.1% as Trump takes office
The economy remains strong, supported by consumer spending, but growth is expected to moderate in 2025 amid policy uncertainty from the Trump administration. With limited fiscal flexibility due to high deficits and debt, much fiscal easing is unlikely. The Federal Reserve is expected to lower rates by 100bps in 2025, bringing the higher end of the Fed funds rate range to 3.50%, while easing real estate prices and declining inflation provide room for monetary policy adjustments.
In Europe: Slow growth prior to Trump’s tariff decision
GDP growth exceeded expectations at 0.9% in 2024, driven by a rebound in consumer spending. Growth is projected to remain positive and may approach 1% in 2025, contingent on U.S. tariffs and the Ukraine conflict, with consumption supported by rising real incomes and declining savings rates. Inflation is expected to return to the 2% target in 2025.
In China: Stable growth underpinned by government stimulus ahead of Trump’s tariffs
GDP growth in 2024 was 4.6%, marked by moderate consumption, slow investments and resilient exports. The 2025 growth target is 5%, supported by stronger policy measures, including fiscal and monetary easing. Additional steps may address local debt resolution, housing, social welfare, and bank capital, with inflation as low as 0.2%.
Equity: In December, the S&P 500 saw a MTD decline of 2.5%, although its YTD performance remains robust at +23.3%. The Nasdaq 100 was up 0.4% MTD, maintaining a strong YTD gain of 24.9%. The Euro Stoxx 50 delivered a 1.9% MTD increase and achieved a YTD gain of 8.5%. Japan’s Nikkei 225 surged 4.4% MTD, bringing its YTD performance to +18.9%. The Hang Seng China Enterprises Index (HSCEI) posted a strong 4.9% MTD gain and an impressive 26.4% YTD increase, while the Hang Seng TECH Index rose 2.6% MTD with an 18.7% YTD advance. In contrast, South Korea’s KOSPI 200 experienced a 2.4% MTD drop and remains down 11.2% YTD. The NIFTY 50 declined 2.0% MTD but managed a YTD increase of 8.8%.
Fixed Income: U.S. Treasury yields rose in December, with the 10-year yield up 40bps MTD and 70bps YTD, ending the year at 4.58%, while German yields followed suit but at a slower pace. Chinese yields declined across all tenors, with the 10-year down 35bps MTD and 91bps YTD, ending the year at 1.70%, reflecting easing conditions.
Currencies: The U.S. dollar showed broad strength in December, with EURUSD declining 1.4% MTD and 5.9% YTD, while USDJPY rose 3.5% MTD and 10.9% YTD. The Chinese yuan weakened modestly, with USDRMB up 0.9% MTD and 2.7% YTD.
Commodities: Commodities saw mixed performance in December, with WTI Oil rising 5.5% MTD but remaining flattish YTD, while Gold dipped 1.0% MTD, yet achieved a strong 27.5% YTD gain. Copper fell 2.3% MTD but stayed positive YTD with a performance of +2.7%.
Bitcoin: The cryptocurrency experienced a slight 1.5% MTD decline in December but maintained an impressive 123.5% YTD gain.
We believe artificial intelligence (AI) is one of the most significant investment opportunities of the decade. Currently, leading technology mega-cap companies are driving the majority of capital expenditures (CAPEX) in AI. We project that these high levels of investment will soon be mirrored by substantial capital allocations across various sectors, geographic regions, governmental bodies, and sovereign wealth funds.
As the large adoption of AI relies on electricity availability, as well as hardware and software infrastructure, the AI sub-sector will drive further investments in the entire Tech ecosystem.
In the U.S.: The stock rally continues on supportive economic backdrop
The S&P 500 is close to record highs, buoyed by the ongoing U.S. Fed rate-cutting cycle. Additional catalysts include the outcome of the U.S. election and a robust third-quarter earnings season. While the new administration’s policies are expected to provide support, trade tariffs remain a source of uncertainty. The U.S. equity rally is anticipated to persist, underpinned by strong earnings growth, resilient economic expansion, monetary easing by the Fed and increased investment in AI.
In Europe: Slow growth and potential Trump tariffs on European goods weigh on equity valuations
Valuations appear attractive compared to historical levels but seem fair given elevated global bond yields and a sluggish earnings growth outlook. While the European Central Bank’s (ECB) interest rate cuts provide some support, EU fiscal tightening and a subdued global growth environment remain challenges. Consumer recoveries, along with a rebound in global manufacturing, are progressing slowly, with potential risks from Trump’s trade tariffs impacting growth.
In China: Uncertainty about Trump tariffs creates substantial equity volatility
The potential for significant tariffs on Chinese exports to the U.S. poses a risk to the outlook for Chinese equities. China seeks clarity on Trump’s tariff policies before introducing further stimulus. Chinese digital transformation stocks may present an investment opportunity, given their attractive valuations and strong growth potential. In this context, a strong government stimulus would underpin a substantial Chinese market rally.
Following an initial USD rally post-U.S. election, the currency has consolidated. We anticipate a reversal of USD strength in 2025 as Fed rate cuts reduce the greenback’s elevated valuation. Starting from Q2 2025, the USD could decline due to lower Fed funds rates, slower growth, increasing budget deficits, and a weaker trade balance, with Trump advocating for a more competitive dollar, particularly against the RMB and JPY.
Due to heightened currency volatility and uncertainty amid Trump’s new tariffs on China and Europe, we recommend hedging (protecting) EUR and RMB exposures.
EURUSD at 1.0250: broke through 1.05 and going towards parity
Europe’s sub-1% growth, combined with low and declining interest rates, as well as additional tariffs from the U.S. on imported European goods, could trigger a EURUSD fall towards parity. The ECB is expected to continue cutting rates by 25 to 50 basis points per quarter throughout 2025. The war in Ukraine is adding a geopolitical “risk premium” on the euro.
USDRMB at 7.37: back to the all-time high amid uncertainty of Trump tariffs
The USDRMB pair might rise temporarily due to potential new U.S. tariffs on Chinese imports, although the People’s Bank of China (PBoC) should stabilize it through a controlled fixing range. Eventually, the pair should decline on strong China growth, large trade balance surplus (USD 100bn/month) and Trump’s will for a more competitive dollar.
USDJPY at 158: rebounding towards the all-time high of 162 on increasing US-Japan yield differential
As the Bank of Japan (BoJ) is sticking to a close-to-zero rate policy and U.S. bond yields increased close to their 20-year highs, investors’ carry trades (i.e. borrowing in JPY and investing in USD assets) continue, pushing USDJPY close to its all-time high. We expect the USDJPY pair to weaken from Q2 2025, when the U.S. Fed resumes rate cuts and Trump puts pressure on Japan to normalize the JPY valuation to a stronger level (i.e. lower USDJPY).
Central banks are expected to keep on cutting rates until the end of 2025. As January 20th approaches, with Trump set to take office, U.S. bond yields are rising towards their 20-year highs, with the 10-year Treasury yield nearing 5%. Expectations for U.S. Fed rate cuts have been revised to a 100bp cut in 2025, down from the initially anticipated 175bps, leading to a significant increase in bond yields.
How to benefit from the cycle of central bank rate cuts?
Bond yields remain elevated as overall bond credit spreads (i.e. the extra yield above government yields) are wider, reflecting some political unrest and uncertainty both in the U.S. and Europe. Central bank support and robust economic growth are maintaining low default rates. This environment presents an opportune moment to increase active bond exposures.
High interest rates can be locked for longer periods by investing cash in bonds from large Investment Grade banks, which can provide an income per annum close to 6% in USD and 4.25% in EUR, with a duration of 5 to 10 years.
Gold: USD 2,700/oz, up 27.5% in 2024
We expect a continued gold rally in 2025, driven by lower interest rates, ongoing geopolitical risks, and concerns over U.S. government debt, which are fueling central bank and investor demand for gold. The uncertainty surrounding U.S. President-elect Trump’s fiscal, trade, and geopolitical policies will further bolster gold demand. Central banks acquired nearly 1,000 metric tons in 2024, with expectations for similar or higher purchases in 2025.
Oil: WTI stabilizing near USD 75/bbl, up 5.5% in 2024
At its December meeting, OPEC+ reaffirmed its cautious approach, with the extension of production cuts. OPEC+ seeks a balanced oil market, which, combined with expected inventory declines, will support prices in the coming months. We believe WTI crude oil may reach USD 85 per barrel in 2025.
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