Investor sentiment in the Chinese market is currently fluctuating between the threat of tariffs and the promise of new stimulus measures. The prospect of another Trump administration revives memories of the 2018 trade war, raising the question of whether the threat of a 60% tariff on Chinese exports and a 20% tariff on exports from other countries is genuinely credible. Without the pressure of re-election, Trump might feel less compelled to fulfill campaign promises, potentially being more considerate of the inflationary impact of tariffs on the US economy. In this context, the Chinese government's announcement later this week detailing its stimulus plan partially offsets this geopolitical risk. Beijing has raised the debt ceiling of local governments by $1.4 trillion, providing targeted support primarily for the real estate sector. Since the initial announcements six weeks ago, expectations have adjusted, and while the details of the fiscal stimulus exceed some expectations, the absence of specific measures to boost consumption explains the mixed reaction in the Chinese market.
Last week, marked by the US presidential election, was particularly concerning for investors. The possibility of a close result that could lead to challenges, even unrest similar to the January 2021 Capitol events, drove a notable increase in market volatility. However, Donald Trump’s decisive and uncontested victory ultimately led to a significant repositioning of investors toward US risk assets, pushing major equity indices to new historical highs.
In the short term, last week's observed trends seem poised to continue. Outperformance in US equities appears probable, especially with the Republican Congress victory pointing toward the implementation of highly expansionary measures in the United States. Likewise, we can anticipate ongoing outperformance in the most cyclical sectors and domestically focused small- and mid-cap stocks. The Federal Reserve meeting provided a second positive catalyst for the week. Jerome Powell confirmed that the Fed's focus will now shift toward supporting the labor market and broader economic conditions, with inflation normalization taking a backseat. Furthermore, Powell’s assurance that the presidential election results will not alter the Fed’s short-term strategy added a positive dimension.
Despite the scale of the relief rally observed in recent days, sentiment indicators do not suggest excessive complacency, and a continuation of the upward trend is possible in the coming days, followed by a welcomed consolidation as overbought signs accumulate.
For now, our constructive outlook on risk assets remains intact, with indicators pointing toward an economic acceleration in 2025. Donald Trump's arrival in January 2025, with the uncertainties and stylistic changes he brings to the White House, will present an opportunity to re-evaluate the economic outlook for 2025 based on the measures announced and those effectively implemented.
The election of Trump in the US has propelled Bitcoin to reach this new all-time high. His positive outlook on digital assets raises hopes for regulatory developments that could provide greater support for cryptocurrencies.