Russia & EM Europe
Negotiations on trade, Iran, and Ukraine will prove critical this month. Markets will remain volatile because positive data surprises enable the White House to press its hawkish tariff hikes, while negative surprises force the White House to backpedal.
Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.
President Trump is negotiating a ceasefire in Ukraine. This will be a marginal headwind to some commodities which benefitted from the conflict like natural gas and wheat, and will be a marginal tailwind for European assets, specifically EM Europe. Use Trump’s tariff shock as an opportunity to buy European assets.
Every year we highlight five low-odds scenarios that would have a major impact on global financial markets if they happened. This year we contemplate a total reversal of Chinese policy, a US-Iran nuclear deal, a breakdown of NATO, US military action across the Americas, and an internationally coordinated FX intervention.
- Congress will pass tax cuts by end of 2025 producing a fiscal thrust of about 0.9% of GDP in 2026.
- Trump will count on that stimulus as a basis for slapping tariffs on leading trade partners.
- China will retaliate against Trump and stimulate its domestic economy, while pursuing stronger trade ties with other countries. Europe will also retaliate.
- Geopolitical risk will shift from Ukraine-Russia to Israel-Iran, where the conflict will continue to escalate until a crisis point is reached within 2025.
The global political system is destabilizing and the US will turn more hawkish in foreign policy, trade policy, or both, regardless of the election outcome. Tactically go long the dollar.
In this Special Report, Marko Papic, Chief Strategist of BCA Research’s GeoMacro Strategy, and Mathieu Savary, Chief Strategist of BCA Research’s European Investment Strategy, together argue that the conflict in Ukraine is already frozen, already losing support in the West, and is likely to taper off over the course of 2025. However, there is no easy alpha left to harvest from that conclusion, the market has already moved on. Some long-term investment opportunities remain in broad European assets.