Macro Update – December 2024
Macro Update – December 2024
U.S. macroeconomic data has exceeded expectations, indicating a positive sentiment boost following Trump’s election, while the Eurozone shows signs of stagnation. Trump is expected to pursue a moderate policy approach, emphasizing economic support measures like deregulation and spending control while tempering disruptive policies such as tariffs and immigration restrictions. This could bolster global economic stability, which is underpinned by sound fundamentals like healthy balance sheets and anchored inflation.
Strategically, a balanced portfolio approach is advisable, combining opportunities with hedges against risks like trade wars or geopolitical tensions. Key investments include the U.S. dollar and local-currency government bonds in fiscally strong countries, ensuring portfolio resilience in uncertain conditions.
U.S.
The U.S. economy shows strong momentum, with consumer confidence at a 16-month high, low unemployment claims, rebounding PMIs, and increased housing purchase mortgage applications. Despite this, the 10-year Treasury yield remains below 4.2%, indicating largely loose financial conditions. With solid private consumption fundamentals and robust demand, a significant economic slowdown is unlikely in the near term. The Fed is expected to lower interest rates gradually, targeting a neutral range of 3.5%-4%, as underlying inflation remains above 2% due to strong aggregate demand. A 25 basis point rate cut is anticipated in December, marking the end of the current easing cycle by early 2025.
Eurozone
The Eurozone experienced a decline in economic sentiment in November, with disappointing manufacturing and services PMIs and falling consumer confidence, potentially influenced by uncertainty surrounding Trump’s election. However, this downturn is expected to be temporary, with growth likely rebounding in 2025 under a “moderate Trump” scenario. Key drivers include strong private consumption fundamentals, very low real interest rates, a dovish ECB with anticipated rate cuts, potential expansionary fiscal policy after Germany’s elections, and European Commission initiatives to ease business regulations. As Trump’s stance toward Europe seems non-aggressive, economic data could begin improving as early as December.
Asia
Recent Chinese activity data show more positive signs, providing room to assess Trump’s policies before introducing further stimulus. Nonetheless, it is possible that additional consumption-focused stimulus will be announced in December.
In broader emerging Asia, we view India’s disappointing November growth figure as a one-off likely to reverse soon.
Japan’s growth prospects remain reasonably favorable, with private consumption benefiting from robust wage dynamics. Fiscal policy continues to support activity, and the Bank of Japan is expected to proceed cautiously in reducing its accommodative monetary stance.
Equities: Moderately optimistic about U.S. small- and mid-cap stocks, Eurozone, emerging Asia, UK, and Japanese equities, with balanced geographic exposure.
Government bonds: Skeptical of long-dated U.S. Treasuries and German bonds, preferring government bonds from fiscally stable countries like Australia and New Zealand.
Corporate bonds: Favoring high-quality, short-duration euro-denominated corporate bonds over weaker European public debt.
Currencies: The USD remains defensively attractive, with opportunities in select developed and emerging currencies with strong fundamentals and yields.
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