These look to extend far beyond just tariffs and include taxation, the dollar, government spending and the Federal reserve, as well as reform of the Federal government system. The idea is that all these policies together combine to drive the US economy ahead from its already firm footing.

In practise these policies are potentially likely to stoke inflation. The recent FOMC meeting produced a ‘hawkish’ 25 bp cut but the Fed indicated that the pace of rate cuts is slowing, ruling out a January cut and rates markets are discounting only two more moves for 2025. The dollar strengthened significantly post meeting and the US Treasury curve has repriced with the 10 year up nearly 100bp from mid-September to 4.50% and the 30 year is now at 4.73%, not far short of the highs of the year. Trump has already stated that he should have influence and a say in setting rates and monetary policy. His efficiency czar has also taken aim at the Fed saying it is ‘grossly overstaffed’.

Continuing weakness in PMI readings from France and Germany contributed to fears of recession.  The ECB delivered a ‘dovish‘ cut of 25bp and looks to be prepared to keep on going, forecasts have consecutive cuts until June, bringing the policy rate down to 2%. Assuming both France and Germany can form coherent coalition governments these rate cuts must start to lead to stability and growth. The weakness of the Euro (currently heading towards parity against the $) should help exports but potentially might invite even more tariffs.

The dismal start by our new UK government continues. Recent GDP numbers showed no growth in Q3 since they took office and a contraction post budget of -0.1%; you talk down your own economy at your peril. The Bank remained on hold (although 3 MPC members voted for a cut) in the face of inflation rising again above target to 2.6% and the Gilt curve has also repriced, steepening to new yearly highs of 4.58% for the 10 year and 5.11% for 30 year Gilts. Sterling has passed its crown as the strongest G10 currency in 2024 to the dollar.

European bond sales set a new annual record at over EUR1.7 Trillion. Sterling corporate bond sales were a healthy £45Billion with more than £70Bn forecast for 2025 (partly influenced by a clutch of redemptions), fairly evenly split between financials and corporates. Euro and Sterling credit spreads were underpinned by demand and remain stable.

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