Global markets are showing signs of positive sentiment heading into 2025 but geopolitical uncertainty and the impact of the incoming Trump administration are the wild cards, according to GSFM and its fund manager partners Payden & Rygel, Munro Partners and Man Group.
GSFM investment strategist, Stephen Miller, says that much of the Trump Administration’s agenda – including the proposed tax cuts and deregulation – will provide a tailwind for equity markets. However, the risk for investment markets, reflecting that same agenda, is the prospect of higher bond yields. Those higher yields may attenuate the potential gains in equity markets.
“A key factor is the already gargantuan US budget deficit. Given the prospect of large corporate tax cuts it now seems certain that bond investors will be asked to swallow the enormous amount of bond issuance that is needed to fund a budget deficit of such an extraordinary magnitude. In so doing the bond market will likely develop episodic and potentially severe bouts of indigestion that have the potential to send yields higher.
“Certainly, Trump 2.0 has undertaken to embark on a high grade weaponisation of trade that will fuel inflation via aggressive tariffs. That will inevitably result in a spike in inflation and bond yields.”
Domestically however Mr Miller says it is unlikely that Trump’s tariffs will have a meaningful impact on Australian inflation and, by extension, the RBA policy rate.
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