Markets: a tug of war between inflation fears and optimism

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. 

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Vincent Mortier

Vincent Mortier

Group CIO

With uncertainty looming – from Trump tariffs to the impact of DeepSeek on AI – we are focusing on global equity opportunities, diversifying with gold and maintaining a tactical approach to duration.

Vincent Mortier, Group CIO

Risk on, but with hedges and gold

investment

Risk on, but with hedges and gold

We continue to expect a benign overall economic outlook, with DM countries running at different speeds and China stimulating the economy in an effort to mitigate structural downtrend and tariff risks. In the US, economic growth is normalising, but Trump policies raise uncertainties on various fronts – risks of labour supply shortages due to restrictive immigration policies, tariffs and fiscal policy. In the Eurozone we expect some modest and heterogeneous recovery with downside risks linked to tariffs. All in all, this paints a benign but uncertain outlook, which leads us to remain positive on risky assets, while at the same time we believe investors should increase hedges on equities and favour gold to enhance diversification.

In Trump 2.0, bonds will be a key income engine

Trump 2.0 policies are likely to diverge from current market expectations as 2025 unfolds. Inflation will be a key factor in evaluating the Fed's trajectory, with Trump’s policies potentially limiting future Fed easing unless a significant growth shock occurs. At current levels, global fixed income markets provide attractive yields, serving as a buffer against macroeconomic and monetary policy uncertainties, which makes them appealing as income generators and portfolio diversifiers. Global investors should also look at opportunities in Europe, which offer higher visibility on the ECB's direction and in EM hard currency debt. Here the outlook remains positive, supported by attractive absolute yields, although careful country selection is key.

In Trump 2.0, bonds will be a key income engine

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Market rotation in favour of Europe and US-ex mega caps

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Market rotation in favour of Europe and US-ex mega caps

Recent volatility, driven first by uncertainty around interest rates and more recently by the DeepSeek announcement, has continued to favour a broadening of the rally, particularly in European equities and sectors outside technology. High valuations leave little room for disappointment; however, lower expected taxes for corporates and reduced regulation should benefit US domestic stocks and global companies with significant US operations. All eyes will now be on the earnings season, which could further support the continuation of the recent rotation. Against this backdrop, we continue to see opportunities in Europe, in US large caps-ex mega caps and financials, while remaining more cautious on Emerging Markets for the time being.

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