Markets exposed to shocks on U.S. rate path, Trump policies
Markets that began the year with investors expecting a global stock rally to fizzle, swift U.S. interest rate cuts to boost Treasuries and soften the dollar and emerging market currencies to strengthen have firmly defied that consensus.
U.S. exuberance rose after Donald Trump’s Nov. 5 election win, as traders focused on the President-elect’s plans for tax cuts and deregulation, with the surge in animal spirits propelling cryptocurrency bitcoin to a 128% annual gain. Debt investors, meanwhile, are growing anxious about Trump’s proposed trade tariffs refueling inflation and fear excessive White House borrowing that could roil the $28 trillion Treasury market and spark wider government bond disruption.
The combined value of the so-called Magnificent Seven U.S. tech stocks accounts for around a fifth of MSCI’s world share index, according to Schroders, raising market threat levels if their earnings or AI technology disappoint.The euro slid around 5.5% against the dollar this year while European stocks performed worse relative to their U.S. peers than they have in at least 25 years.
Currencies in Egypt and Nigeria fell around 40% against the dollar following devaluations, and Brazil’s real weakened more than 20% as worries about government debt and spending intensified. Investors who held on to China in 2024 were rewarded with an 14.5% annual gain but many expect the short-term boom and bust cycle to continue, disrupting markets in Europe and Asia, until Beijing takes direct action.Interest rates fell across big economies this year but bond investors suffered annual losses after spending much of 2024 pricing in more monetary easing than central banks eventually delivered as inflation stayed stickier than expected.
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