GSAM | Global Markets Brace for New Reality as Trump Return Looms
- Editor
- Jan 1
- 2 min read
What's new: The global financial landscape is recalibrating for 2025 as central banks pivot to easing cycles, while markets grapple with the potential policy implications of Donald Trump's legislative agenda following his return to office.
Why it matters: The convergence of monetary easing, geopolitical tensions, and a potential shift in U.S. trade policy creates a complex environment where investors must navigate both opportunities and heightened risks across global markets.
Big Picture Drivers:
Fed's dovish pivot is catalyzing global rate cuts, with the federal funds rate dropping to 4.5-4.75% following cuts in September and November 2024, setting the stage for continued easing through 2025.
Trump's return raises prospects of pro-growth measures like corporate tax cuts and deregulation, but also brings risks of trade protectionism that could disrupt global commerce and supply chains.
China's aggressive policy response to property sector challenges and domestic demand weakness signals a major shift in Beijing's approach to economic management.
By The Numbers:
ECB has already executed three rate cuts in the current cycle (June, September, and November 2024), with more expected as European growth momentum slows.
Bank of England delivered its second rate cut in November, lowering rates to 4.75% from 5.00%, with acceleration of cuts possible throughout 2025.
Multiple emerging market central banks including South Korea, Thailand, South Africa, and Mexico initiated rate cuts in Q4 2024, marking a broader global shift.
Key Trends to Watch:
Consumer health metrics including debt service ratios, which remain low in Japan, US, and Euro Area but are elevated in Australia, Canada, and UK due to shorter-term mortgage structures.
Trump's first 100 days will be critical for assessing legislative priorities, particularly regarding tariffs and their potential impact on growth and inflation.
Dollar strength dynamics, as trade policy uncertainty and relatively robust U.S. growth could support continued appreciation.
The Bottom Line: A new equilibrium is emerging characterized by higher structural interest rates than the previous cycle, creating an environment where investors need to recalibrate portfolios using a diverse toolkit across both public and private markets to capture opportunities while managing heightened geopolitical and policy risks.
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