The Trump 2.0 era is upon us and markets have already become extremely sensitive to inflation data, a trend that will likely last in the coming months. Higher inflation sensitivity has also turned equity/bond correlation back to positive. Markets are currently influenced by two opposing forces: the prospect of Trumponomics reinforces the narrative of US exceptionalism, while the imposition of tariffs introduces uncertainty into global supply chain dynamics and inflation trajectories. As the battle between these two narratives will keep volatility high, investors should focus on:

• Earnings trajectory amid US fiscal policy, tariffs and AI. While fiscal loosening and deregulation may provide a temporary boost to GDP, the negative effects of tariffs and reduced immigration are likely to weigh on economic performance in the last part of the year. Tariffs will also impact corporate earnings, with potential risks of revisions in H2, while short-term focus will be on how the recent announcement of a new low-cost AI model by Chinese DeepSeek could affect global players.

• Asynchrony in central banks’ actions. The Fed is on pause, with cuts likely to come later in 2025 if inflation data retains a downward trend. In Europe, we expect both the ECB and the BoE to cut rates sooner, while the Bank of Japan (BoJ) remains in the hiking mode.

• US dollar volatility, rising oil prices and China’s stimulus are key themes for Emerging Markets. Uncertainty remains high amid high geopolitical risks and expectations of Trump’s tariffs. 

You can now read the full whitepaper at the link below