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

• 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 walking the path of interest rate cuts. It is expected that at the next meeting (December 2024) both central banks will once again cut policy rates by 25bp.
• The divergence in economic growth between the US and Europe combined with Trump's expected policies (planned deregulation and fiscal stimulus) means that the market expects fewer interest rate cuts by the Fed for 2025 than before. ECB policy expectations remain unadjusted.

• Interest rates seem to have peaked, though they remain highly volatile, especially in the US where they have soared in the last two weeks. This is the result of the market pricing in a rate that could well remain higher for somewhat longer than expected.
• Indeed, it is expected that Trump's policies on areas such as migration as well as tariffs could fuel inflation.

• The focus of the Q3 earnings season is behind us both in the US and Europe. 
• Expected earnings growth was revised downwards in recent weeks but is still positive in America where profits are up 7%. In Europe, however, earnings growth is stable compared to a year ago.
• The bulk of the expected earnings is still coming from large US technology companies, although that growth is lower than in past quarters.

• 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.