House View Q1 2025: Fresh thinking
Our view of global markets
The “Trump effect”
- Donald Trump’s return to the White House is set to be a game-changer for the US economy and markets. We think the likelihood of more fiscal stimulus and deregulation may drive growth and provide a tail wind for risk assets, at least in the short term.
- We still consider a “soft landing” as the most likely outcome for the US economy, where inflation slows and recession is avoided. But we see an increasing risk of a “no landing” where growth reaccelerates and inflation takes off again. This would likely have implications for US monetary policy.
- Globally, the second Trump term comes as economies diverge in growth, inflation and interest rates. We see this divergence widening in 2025.
- Fresh thinking and broader diversification are advisable. Diversification might include private market assets, particularly if rising inflation reverses the recent decorrelation between stocks and bonds.
- Given the Trump effect, we are positive on US equities but are conscious of high valuations. In fixed income, we like Europe over the US, as anticipated European rate cuts are more likely to remain intact. The sequencing of the policies of the incoming US administration will be key in determining the trajectory of financial markets in 2025.
- From tariffs to political paralysis in the euro zone, geopolitical risk will loom large but unevenly across markets, requiring a deft approach to managing a portfolio.
Chart of the quarter
Trade wars ahead?
Higher tariffs proposed by Donald Trump against China, Mexico and Canada and other major trading partners would shake up trade and risk a more protectionist global landscape. If fully implemented, they could prompt retaliation, threatening the flow of everything from batteries to electric vehicles and raising prices for consumers and businesses, potentially undermining growth.
Source: Allianz Global Investors Global Economics & Strategy, Bloomberg, United States International Trade Commission (data as at 27 November 2024). Note: chart assumes tariff rates will rise from current levels to those indicated by Mr Trump.
