Iain Cunningham – Head of Multi-Asset Growth
In the US, monetary policy has been eased to support growth and protect the labour market. However, Trump’s election victory has introduced uncertainty regarding inflation. In response, the US Federal Reserve (Fed) appears to be more cautious about further easing. Policies of deregulation and tax cuts are expected to bolster growth, while tariffs and proposed immigration measures may exert upward pressure on inflation. Our central outlook for the US economy in 2025 anticipates relatively robust growth, with inflation consolidating toward target despite some volatility. Higher bond yields and uncertainties around trade policies could contribute to near-term volatility in US risk assets.
US PMIs
Source: Ninety One, Bloomberg, December 2024.
US core CPI
Source: Ninety One, Bloomberg, December 2024.
In Europe, monetary policy has also been eased, but conditions remain relatively tight. Growth indicators have been weak, with some countries nearing recession, while short-term inflation measures align with the European Central Bank’s (ECB) target. We expect eurozone growth to remain subdued and inflation to moderate further. The ECB’s easing cycle is likely to be more pronounced than the Fed’s, given structural challenges in the eurozone and risks posed by potential US tariffs.
Eurozone PMIs
Source: Ninety One, Bloomberg, December 2024.
Europe core CPI
Source: Ninety One, Bloomberg, December 2024.
In China, easing measures are becoming increasingly aggressive, with policymakers prioritising domestic demand expansion. Additional announcements are expected following recent key policy meetings. Authorities appear determined to ensure a sustained recovery, though growth remains uneven and inflation weak. However, base effects should provide some inflationary support going forward. We believe the Chinese economy will fare better than bearish consensus views suggest, given the escalating policy response.
China PMIs
Source: Ninety One, Bloomberg, December 2024.
China core CPI
Source: Ninety One, Bloomberg, December 2024.
Reflecting our central investment roadmap, we reduced exposure to US equities in December and early January, recognising elevated sentiment and heightened uncertainty surrounding tariffs in the first half of the year. This positioning enables us to take advantage of potential market weaknesses. In fixed income, we maintain a significant allocation to defensive government bonds to hedge downside risks and prepare for opportunities during market volatility. In currency, active positions remain limited, with the US dollar at a pivotal juncture. Its trajectory will likely hinge on the Trump administration’s trade policies in the months ahead.
General risks. The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
Specific risks. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems. Commodity related investment: Commodity prices can be extremely volatile and significant losses may be made. Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company.