The markets predict that the program of the 47th President of the United States will have inflationary tendencies according to the evolution of the American 10-year bond which since the election has moved in a range of 4.38-4.45%.
In a tense geopolitical atmosphere, the Old Continent continues to slide following the publication of disappointing PMIs confirming the trend of economic slowdown. The American stock markets live to the rhythm of cabinet appointments of the new administration and Trump Trades.
As the results publication season draws to a close, the nominations are blowing hot and cold across the markets. The latest, that of Scott Bessent at the head of the Treasury, seems to reassure Wall Street. This investment fund manager, a keen expert on the markets, advocates an ultra-liberal policy while supporting customs duties as a negotiating lever. It counterbalances that of Robert F. Kennedy at the head of the Department of Health and Human Services or that of Peter Hegseth, this Fox News host who has no military or national security experience, propelled to the head of the Pentagon during a period of intense geopolitical tensions. In any case, all of these choices reflect the president-elect’s desire to show his base that he does not intend to pull any punches in keeping his campaign promises.
The markets predict that Trump’s program will have inflationary tendencies according to the evolution of the American 10-year bond which since the election has moved in a range of 4.38-4.45%.
Despite the uncertainties linked to the implementation of Trump’s political program, investors are favoring American markets more than ever and for good reason. While the composite PMI indicators came out online in the United States (55.30 versus 54.30 expected), they showed surprising weakness in Europe (48.10 versus 50), corroborating if necessary different economic realities on the one hand and on the other side of the Atlantic. The political situation in the two main economies does not help. While the French government lacks stability, Germany is forced to hold early elections. The specter of American customs duties exacerbates the climate of uncertainty and weighs even further on an already weak economic outlook.
Over the past week, the S&P500 increased by 1.28%, the Nasdaq by 1.15%, while the Stoxx Europe 600 gained 1.12%.
This week, the macroeconomic agenda expands somewhat with PCE inflation and the minutes of the last Fed meeting in the United States and the first German inflation estimates for the month of November.
In December the Central Banks of the two economies will decide one last time in 2024.
For the Fed, fewer and smaller rate cuts are expected. The FedWatch tool tells us that the probability of a 25 basis point (bps) rate cut at the next meeting has fallen from almost 75% a month ago to 55% today. We now estimate future declines of between 1.2 and 1.5% over the next twelve months.
For the European Central Bank the scenario is different. More cuts will likely be needed to support the economy. Following the publication of the PMIs, the probability of a 50 bps drop at the next meeting on December 12 increased to 60%.
Despite the global instability which calls for caution, future rate cuts could give impetus to the stock market.
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