Last week in a nutshell
- In the US, the ISM manufacturing index rose in December but remained in contraction at 49.3. New orders improved but the employment component remains weak.
- The publication of final PMI around the world confirmed that services outperformed globally, while manufacturing remained a weaker link.
- China announced plans to boost ultra-long treasury bond funding in 2025 to finance consumer subsidies and business upgrades, signalling stronger fiscal stimulus.
- The transit of Russian natural gas through Ukraine to Europe came to an end, affecting countries like Hungary and Slovakia.
What’s next?
- The US December jobs report is due. Clues on the unemployment rate will be given by the preceding JOLTS report and the ADP employment data.
- Key inflation data from the euro zone and China will highlight global trends. Euro zone flash CPI figures follow Spain's recent upside surprise, while China's CPI is expected to reflect ongoing deflationary challenges.
- The FOMC meeting minutes will provide some clarity on the Federal Reserve's December policy decisions, particularly concerning inflation risks.
- Poland took over the presidency of the Council of the European Union from Hungary on January 1, 2025. Poland will aim to focus on enhancing security across various dimensions, including external, internal, economic, and energy security.
Investment convictions
Core scenario
Global growth aligns with expectations, but regional disparities persist.
- In the United States, strong economic activity continues to be bolstered by resilient corporate profits and an optimistic outlook fuelled by supportive domestic policies.
- Europe faces challenges with sluggish growth and limited earnings prospects, hindered by structural issues and ongoing political uncertainty in key economies.
- In Emerging Markets, weak consumption and deflationary pressures in China undercuts efforts to reach a 5% growth target, while the broader region struggles with the dual pressures of US tariffs and a strong dollar.
Risks
- Geopolitical tensions and the unpredictability of trade policies and diplomatic relations pose significant risks to market stability.
- The uncertainty surrounding Donald Trump’s presidency, particularly regarding tariffs, taxation, and deregulation, creates a complex and volatile policy landscape for investors.
- Diverging central bank policies worldwide could exacerbate asset price volatility, driven by differing inflation trajectories and monetary strategies.
Cross asset strategy
- Our outlook for equities is broadly positive
- Especially in the US, driven by robust economic growth and resilient corporate earnings.
- We have a particular focus on the cyclical sectors that are expected to benefit from domestic policies.
- In contrast, European equities remain underweighted due to limited earnings growth potential, structural challenges, and political uncertainty.
- The stance on Japan is neutral.
- Emerging markets offer selective opportunities, particularly where valuations are attractive, but these regions face headwinds from US tariffs and a strong dollar, which could temper gains.
- In fixed income:
- We hold a short US duration, reflecting concerns about potential inflationary pressures tied to policy uncertainty under the new US administration.
- We prefer a long German duration and European credit, supported by a favourable interest rate and growth environment. European bonds also serve as a hedge, given their negative correlation to equities in a disinflationary environment.
- Alternatives play a crucial role in portfolio diversification:
- Gold is favoured for its protective qualities against market volatility and geopolitical risks, despite recent pressure from a stronger dollar and rising US real interest rates.
- In currencies, exchange rates will remain a focal point in trade discussions and broader market dynamics:
- The outlook for the US dollar remains complex, as domestic policy dynamics may both support and limit its appreciation. For now, we hold a long USD position.
- The Japanese Yen may appreciate in response to global economic stabilization and its safe-haven status.
Our Positioning
Our portfolio is aligned with a soft-landing scenario for global growth, emphasizing resilience in US equities and European fixed income while maintaining caution in regions facing heightened risks.
Looking ahead, investors can anticipate opportunities arising from a normalization in Chinese growth, potential easing of trade tensions, and renewed investor interest in undervalued regions or asset classes.