US Economy: A Bright Outlook!
The economic statistics published since the beginning of the year in the United States once again underscore the remarkable resilience of the country's economy. Manufacturing activity is rebounding after a mixed 2024, while demand for services remains robust. The strength of these activity indicators largely explains the vigor of the labor market. In December, over 250’000 new jobs were created, significantly surpassing economists' estimates. Moreover, the unemployment rate remains stable, which is expected to continue supporting household consumption.
These stellar figures are likely to heighten investor concerns regarding the Federal Reserve's monetary policy. Markets are now pricing in a single 25 basis point rate cut for US interest rates, and not before summer. The imminent inauguration of Donald Trump as president next Monday is expected to further fuel fears of a resurgence in US inflation.
Trump's Return to the Presidency Clouds the Outlook
The fundamentals of the US economy remain favorable; activity indicators are recovering, including in the industrial sector. Business sentiment is improving, and household consumption appetite remains strong despite a slight cooling in the labour market. Furthermore, Donald Trump's return to the presidency could inject additional momentum into economic activity. The Republican candidate’s campaign hinted at numerous procyclical measures, notably further tax cuts aimed at boosting consumer spending and investments.
Meanwhile, the US Federal Reserve is exercising caution in response to the incoming administration's promises, largely due to the often unpredictable nature of the president-elect. Concerns over the announced introduction of new trade barriers and the resulting inflationary risks in the US appear to have prompted the central bank to pause its monetary easing cycle. This environment has already led to a noticeable increase in long-term USD bond yields, a movement we consider somewhat overdone.
Elsewhere, central banks around the world are likely to continue easing monetary policy. This is especially true in Europe, which faces challenging economic and political conditions. Nonetheless, the continent could offer some positive surprises. In Berlin, a potential shift in the executive branch may pave the way for loosening the legislative constraints that currently limit federal borrowing in Germany. Additionally, a truce or end of hostilities in Ukraine could help restore economic confidence across the continent. China, on the other hand, is expected to continue prioritizing measures to stimulate its economy. In Japan, emerging positive developments in corporate governance could yield favorable outcomes, both economically and financially.
While the global economic and monetary environment remains conducive to further equity market gains in 2025, political developments, particularly in the US, suggest heightened volatility compared to the past year. Consequently, we maintain a constructive portfolio positioning on risky assets while ensuring sufficient liquidity to seize emerging opportunities.
As far as currencies are concerned, the widening of the yield differential in favour of the greenback seems to indicate a new period of strength for the US dollar.
This week’s figure: 81 USD
Oil has rebounded sharply over the past month, reaching $81. Newly announced US sanctions against Russian entities are raising concerns about further supply tensions, particularly for China and India, which continue to import significant volumes of oil from Russia.
Author
-
Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
