GeoMacro | Secular Themes
Long-term thematic shifts in geopolitical forces that will shape the years or even decades ahead. Typically published 3 times a month.
The CNY is undervalued and highly competitive. This gives China room to let the currency appreciate while remaining an export-driven powerhouse, gradually shifting from export intensity toward stronger domestic consumption. This achieves two objectives. First, it narrows the capital account deficit and strengthens the CNY’s role as a global anchor. Second, it enhances Beijing’s geopolitical autonomy by reducing reliance on foreign final demand.
President Donald Trump’s political capital is moderate, as he frontloaded his most disruptive policies within the first year.
Beyond the imminent SCOTUS ruling, we revisit our bullish Europe thesis – with the Chart of the Month suggesting that Germany is so back – as well as our bearish USD view. Also, a few charts on oil and geopolitics.
Ignore Japan's constitutional debate. Rearmament will accelerate anyway. Tech, defense stocks, and industrials will benefit. The threat to JGBs is real but will probably be contained.
Our top five "Black Swan" risks this year are familiar but all too realistic in the current climate. Investors should stay overweight US equities and EM-ex-China until some hurdles are cleared.
Europe is in a geopolitical sweet spot. Exaggerated fears of Russian military aggression and abandonment by the United States, as well as increased competition from China, create a geopolitical imperative to stimulate, reflate, and reform. Taken together with fading cyclical headwinds, it suggests that European risk assets can continue to outperform US ones on a cyclical investment time horizon. Remain long European stocks, in particular industrials, and EUR/USD.
Investors should bet against the US seizing Greenland by force and collapsing NATO. But stay tactically defensive anyway.
Congress will ultimately limit Trump from acting on his worst impulses, but his efforts to bypass those limits will cause market volatility.