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

• Inflation in both the US and Europe is currently being driven by stubborn but not accelerating 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.

• Stubborn core inflation and continued robust economic growth have been pushing US bond yields sharply higher since September. Fears about the inflationary impact of Trumponomics (due to factors such as planned policies on migration, import tariffs and the national budget) have fuelled this increase further. 
• Eurobond yields were able to partially withstand this effect. Although it is likely that the peak has been reached.

• The results season kicked off recently with fine performances in the US financial sector and results from a number of big tech companies came in this week. For the US market, earnings are expected to grow by 9.4% for the fourth quarter of 2024, once again mainly driven by large technology shares (+20%). 
• As usual, expectations have been revised downwards somewhat in recent weeks, making negative surprises unlikely. 
• Analysts are now expecting 14% earnings growth for US companies in 2025. This seems feasible, although the contribution from the technology sector may be a lot smaller. The rest of the companies that were barely able to achieve earnings growth in 2024 are now expected to make a solid contribution. 
• For the euro area, the expected earnings growth of 7.5% appears almost certainly too high.

• 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.
• Lastly, Chinese AI technology may throw a spanner in the works: DeepSeek has achieved impressive results at a fraction of what it costs in the West.