How is the return of 'businessman Trump' making itself felt in financial markets? Will he turn the world upside down in his second presidential term? Or is a president who puts business interests first mostly good news for the stock market? Mark Van Assche, Private Banking and Wealth Office account manager, talks to Antoine Ruotte, Senior Portfolio Manager at KBC Asset Management.

04/12/2024

What to expect at a first 'get-to-know-you' meeting

• Nowadays, inflation in both the US and Europe is driven by persistent core inflation (especially in the service sector). 
• This, combined with more volatile energy prices and upward base effects, will make the path of disinflation more difficult in the near term. 
• On top of this, Trump policies (via planned import tariffs and the impact of stricter migration policies on the labour market) are widely believed to push global inflation slightly higher again.

• The exceptional stimulus programmes are being scaled back, but there is no sign of savings drift. On the contrary, Trump plans new tax cuts under his leadership, but the extent to which his tariff plans can compensate for this remains to be seen. 
• China also continues to regularly support its flagging economy through new policy decisions.
• Both the Fed and the ECB are currently pursuing a strategy of interest rate cuts. Both lowered their key rates by 25 basis points last week. The divergence in economic growth between the US and Europe, combined with Trump's expected policies (planned deregulation and tax incentives), means that the market is now expecting the Fed to carry out fewer rate cuts in 2025. 
• In his speech following the Fed’s decision on interest rate policy, Jerome Powell also hinted that he expects only two rate cuts in 2025.

• Interest rates seem to have peaked, though they remain highly volatile. Despite some cooling in recent weeks, US bond yields have risen sharply since the end of September. This is the result of the market pricing in a key rate that could well remain higher for somewhat longer than expected. It is feared that Trump's policies on areas such as migration and tariffs could fuel inflation. 
• European bond yields briefly rose in tandem with those in the US, but are now back to end-of-September levels.

• The third-quarter results season In both the US and Europe is now largely behind us. Expected earnings growth has been revised downwards in recent weeks, but is still positive in the US, where earnings have grown by 9%. 
• The bulk of the expected earnings is still coming from large US technology companies. In Europe, however, profit growth is stable compared to a year ago. 
• Earnings growth expectations for 2025 hover at around 14% for the US and 8% for the euro area, which certainly seems somewhat high for the latter.

• The conflict in the Middle East and Ukraine could continue to cause nervousness. As far as what will happen to the aid to Ukraine, Trump's policy decisions could certainly have a big impact. 
• We are closely monitoring the political developments in Germany.