Elections
For our last publication of the year, we explore five key themes that will dominate the European macro landscape and markets next year. While the start of 2025 will be challenging for European assets, the latter part will offer some much-needed relief.
A change in government is the likeliest outcome of the next election, but the pre-election period will be stretched to ensure that the recently announced stimulus trickles down to voters. The next Prime Minister must face President Trump on top of dealing with domestic housing challenges. Go long Canadian energy stocks versus the broad market and long AUD/CAD to take advantage of the differentials in regional geopolitics.
Investors have given up on European assets, which now suffer exceptional discounts to US ones. However, tighter US fiscal policy, the end of Europe’s austerity and deleveraging, the LNG Tsunami about to hit European shores, and the global capex fueled by the Impossible Geopolitical Trinity mean that Europe’s time to shine will soon come back.
Investors have given up on European assets, which now suffer exceptional discounts to US ones. However, tighter US fiscal policy, the end of Europe’s austerity and deleveraging, the LNG Tsunami about to hit European shores, and the global capex fueled by the Impossible Geopolitical Trinity mean that Europe’s time to shine will soon come back.
Investors are overstating the positive fiscal impact of the Trump presidency. The bond market will have something to say about the scope for further deficit expansion via tax cuts. As such, the trade after the trade of the Trump 2.0 administration may involve less growth out of the US, not more. In the interim, however, investors should continue to expect higher yields and increased equity volatility. There are plenty of risks ahead, including geopolitics, trade, and uncertainty surrounding fiscal policy.
Ultimately, 2024 is not 2016 — a seemingly obvious point, but one with market relevance. In 2016, voters gave Trump a strong mandate for nominal GDP growth. It is not clear if this is the case today. Inflation is the most important issue, least relevant is trade and globalization. As such, Trump’s renewed mandate is for supply side reforms, not more populism and protectionism.
Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.
Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.