European prospects are darkening in this negative political context for its exports and with a reduced internal capacity to react. The Chinese economy offers a note of optimism.
The election of Donald Trump as president represents the main event of the past week. This clear victory, partially anticipated, caused American sovereign rates to fall in a steepening movement and supported the dollar. This is linked to the trade war announced by Trump but above all to the fight against immigration, which is likely to make the labor supply scarce and support wage inflation.
The Republican presidency also supported American actions (but not foreign ones) in anticipation of an expansive fiscal program to support the economy. This last effect is likely to fade in the event of an absence of a majority in Congress, the final, tighter result of which remains pending, unlike in the Senate where a Republican majority is assured. A failure in Congress, on the other hand, is not likely to stop trade or migration measures. The Republican desire to support oil production, on the other hand, supported a drop in prices.
The EU’s two main countries face a fractured political landscape and limited decision-making capacity.
This success had the effect of accelerating the breakdown of the fragile German coalition, the additional threat to exports linked to the Trump presidency not having made it possible to unblock negotiations on a slightly more expansive budget of 9 billion euros desired by the SPD and the Greens and refused by the FDP; stuck to the golden rule of budgetary restraint despite Germany’s difficult economic situation. The triggering of early elections should not, however, make it possible to unblock this rule given that the rigorist CDU should lead the next coalition.
The election had no effect on the conduct of the Fed, which lowered its rates by 25bp. While awaiting the potential impact of the new policy over time, the central bank logically took into account the fact that the slowdown in the labor market has reached a better balance and inflation remains generally more moderate. US job creations actually fell sharply to 12k in October compared to 100k expected and 223k in September (also impacted by the hurricanes and the strike at Boeing) without forgetting a downward revision of 112k over the previous two months. and a manufacturing ISM down to 46.5. The unemployment rate nevertheless remains stable with wages up 4% and activity in services remains very resilient with a rebound in the ISM to 56.
The Bank of England has also decided to lower its rates by 25bp but is expected to slow down in 2025 due to the latest budgetary decisions in support of the economy, the inflationary impact of which is estimated at 50bp in 2025.
The Chinese economy offers a note of optimism with the Caixin PMI activity indicators back in expansion zone with services at 52 and manufacturing at 50.3. The announcement of measures to support activity was disappointing and the expected effect should not resolve the country’s structural problems.
European prospects appear weakened in this negative political context for its exports and with a diminished internal capacity to react while the two main countries of the EU must face a fractured political landscape and limited decision-making capacity. European rates and equities have in fact remained uncorrelated with the American market.
In this context of a rising dollar and a negative outlook for global exports, we have decided to raise our score on American stocks, maintain our positive view on Chinese stocks and reduce that on emerging stocks while maintaining our score global equities and rates at neutral. We maintain our positive views on the Investment Grade and emerging credit markets.
