Three Questions for 2025
- 06 January 2025 (10 min read)
Many investors are counting on a low “transformation rate” from D. Trump’s electoral platform to implementation, considering that adverse market reactions to policy announcements would quickly trigger some recalibration. Yet, the experience from Trump’s first mandate does not point to such an “error correction” mode. Unfavourable market reactions to some aspects of his policies – trade war, containment of “Big Tech – did not sway Trump’s stance at the time. A “mellowing” from the platform is not necessarily the natural slope. Political constraints may be better predictors of how the campaign pledges will shape actual policies. From this angle, the new episode of government shutdown drama in December was informative: the President-elect is already squeezed between an active minority of fiscal hawks in his own party and a Congress majority which has not renounced its pro-spending proclivities. This suggests that a significant additional drift in the deficit, as tax cuts are unlikely to be offset by spending restraint, remains the most likely scenario, justifying the additional rise in long-term yields of the last few weeks.
How China responds to the new US administration is another key question. The shift to supporting consumption in the definition of the fiscal stimulus is welcome, but many announced measures remain vague and unquantified. Skewing the allocation of productivity gains towards wages is what the country needs right now, but this may be difficult to deliver for businesses amid deteriorated prospects.
The issue for Europe this year is how the new awareness of the widening gap relative to the US, prompted by the Draghi report, can elicit action rather than feed the general gloom. Popular support for EU institutions has improved after the slump of the last decade, and this could be leveraged to trigger another step of fiscal integration. More political consistency across the member states could be the result on potential early elections in Hungary. Yet, getting a decisive impulse from Germany will be difficult, even after a change in coalition, given the political and institutional constraints there. Finally, getting more momentum at the European level will remain daunting without a domestic political clarification in France, possibly at the cost of another election which itself carries additional risks.
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.