The Trump election aftermath: The rally continues on U.S. assets and Bitcoin
The global economic backdrop is rather positive with resilient global growth underpinned by rate cuts and declining inflation in major economic regions.
In the U.S.: Robust growth with favorable economic policy
U.S. growth is driven by supportive fiscal policies and rate cuts, with robust consumer spending sustaining economic expansion. Future growth will hinge on policy decisions by the incoming Trump administration. Inflation has eased significantly due to lower energy prices, but fiscal deficits are expected to remain elevated in the coming years.
In Europe: Slow grinding growth amid geopolitical and Trump tariff risks
Third-quarter GDP growth exceeded expectations at 0.9% annualized, driven by strong consumer spending. While investment and manufacturing remain weak, gradual improvements are anticipated as interest rates decline and global trade recovers.
In China: Defensive stimulus ahead of Trump tariffs
US tariffs on Chinese goods are expected to rise to 30% by mid-2025, potentially reducing GDP by 0.5% to 1% annually. Stimulus measures are mitigating these effects, boosting retail sales (4.8% year on year) and exports (12.7% year on year). Manufacturing remains resilient, supporting overall economic stability.
Equity: In November, U.S. equities surged, with the S&P 500 and Nasdaq 100 gaining 5.7% and 5.2% MTD, driving YTD gains of over 24%. European and Asian markets were mixed, with the Euro Stoxx 50 flattish and the Nikkei 225 down 2.2% MTD, while Chinese and Korean indices faced sharper declines. Despite recent volatility, YTD performances remained strong for most indices, notably the Hang Seng China Enterprises (+20.4%) and S&P 500 (+26.5%).
Fixed Income: Global fixed income markets saw declining yields across the board, with U.S. Treasuries falling modestly (2-year: -3bps MTD, 10-year: -12bps MTD), while the 10-year yield remained up 29bps YTD. German and Chinese yields experienced sharper declines, particularly in the 2-year segment, reflecting continued downward pressure YTD.
Currencies: The U.S. dollar strengthened broadly, with EURUSD and GBPUSD down 2.8% and 2.1% MTD, respectively, while USDJPY declined 1.2% MTD but remained up 7.2% YTD. The USDRMB rose 1.7% MTD (+1.8% YTD), while AUDUSD fell 1.1% MTD, extending its YTD loss to 4.8%.
Commodities: In November, commodities saw declines, with WTI Oil falling 1.8% MTD (-5.1% YTD), Gold down 3.0% MTD but up 28.8% YTD, and Copper dropping 5.4% MTD (+5.2% YTD).
Bitcoin: The cryptocurrency surged 33.8% MTD, extending its impressive YTD gain to 132.4%, fueled by the “Trump trade” pre- and post-election.
In November, global equities rallied as a clear U.S. election outcome boosted market sentiment, supported by expectations of deregulation and tax cuts. While selective tariffs may pressure non-U.S. equities, the overall outlook remains positive due to resilient economic growth, central bank rate cuts, and robust earnings driven by AI investments.
In the U.S.: The U.S. stock rally continues in the aftermath of Trump’s win
The S&P 500 reached new highs, driven by Fed rate cuts, a strong Q3 earnings season, and the U.S. election outcome. While the new administration’s policies are broadly supportive, tariffs remain a key uncertainty. U.S. equities are expected to continue rising, supported by robust earnings, improving inflation, rate cuts, and AI-driven investments.
In Europe: Slow growth, declining earnings, and potential Trump tariffs on European goods weigh on equity valuations
Earnings recovery is slower than expected, with Eurozone earnings likely to decline by 1% in 2024 and potentially grow by 4% in 2025. Risks to earnings persist under a Trump presidency due to higher tariffs. However, reasonable valuations and easing monetary policy provide a supportive market backdrop.
In China: Stocks sold off on expected new Trump tariffs
Trump’s election increases the risk of significant tariffs on Chinese exports, creating uncertainty for Chinese equities. China awaits clarity on U.S. trade policy before implementing further stimulus measures. A strong stimulus would trigger a substantial Chinese market rebound, supported by attractive valuations and robust growth.
The U.S. dollar remains strong for now, but its level appears overvalued with respect to the massively widening U.S. trade deficit and debt increase. Markets rallied on expectations of tariffs and tax cuts following Donald Trump’s re-election, boosting the dollar by 6%. However, the new Trump administration will pressure interest rates to make the dollar more competitive in 2025.
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 down to 1.05: Perfect-storm parity risk
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 European Central Bank (ECB) is expected to continue cutting rates by 25 to 50 basis points per quarter throughout 2025.
USDRMB at 7.30: Upward pressure ahead of expected U.S. tariffs on imported Chinese goods
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 could decline as RMB asset demand grows and the world’s corporations exchange USD for RMB to buy goods in China. With U.S. interest rates decreasing while RMB rates remain steady, USDRMB is expected to fall in 2025. A monthly trade surplus of about USD 100 billion further pressures the USDRMB downward.
USDJPY at 150: Drop from all-time high 162 on both U.S. and Japan political pressures
The JPY is projected to strengthen in 2025, driven by its undervaluation and a narrowing yield gap as U.S. rates decline and Japanese rates increase. Political pressure from both the U.S. and Japan, opposing excessive yen weakness, further supports its appreciation. A stronger yen would align with the strategic goals of both nations.
Central banks are expected to keep on cutting rates until the end of 2025. On December 12th, the ECB is expected to cut its deposit rate by 25bps from 3.25% to 3.00% and, on December 18th, the lower bound of the U.S. Fed funds rate range is expected to be cut by 25bps from 4.50% to 4.25%.
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 2,660/oz, up 30% YTD
In the second semester, Gold prices surged to record highs, exceeding USD 2,800/oz, driven by central bank purchases and de-dollarization trends. While there were slight declines after Trump’s election victory, sustained central bank buying and other factors like lower real interest rates and geopolitical risks are likely to support prices. These drivers indicate continued strength for gold in the coming year.
Oil: Stabilizing near USD 68/bbl with upside potential
Oil prices declined in November on expectations of oversupply. Yet, OPEC+ is unlikely to ease production cuts if the market struggles to absorb additional supply, which would support higher oil prices in 2025.
