Monthly letter January 2025

KEY EVENTS

The early months of 2025 have been dominated by the return of J.D. Trump to the White House.

That this topic would capture everyone’s attention was predictable, as was the likelihood that the tone of discussions would be more heated than usual. However, the rhetorical peaks reached by the new/old President of the United States (and some members of his staff) were not easily imaginable.

On multiple occasions, he has surprised public opinion both with an unusual level of emphasis for someone about to assume the role of the most powerful person in the world and with the announcement of policies set to have a significant impact on the global stage.

As a result, current geopolitical and trade dynamics could undergo drastic changes. However, it remains difficult to understand which decisions (and when) might help to ease long-standing, dangerously tense situations and, conversely, which ones could risk having negative repercussions.

Notable examples include the way ongoing conflicts in the Middle East and Eastern Europe are now being assessed. Furthermore, it is evident that the political situation in the rest of the world has taken a back seat.

“We will drill, baby drill”
(D. Trump, upon taking office, shapes the energy policy program in his own distinctive way. Washington D.C., 01/20/25)

The advent of J.D. Trump has also influenced macroeconomic conditions and monetary policy, particularly fueling the debate on the imposition of tariffs.

A frequently inconsistent flow of news has had to be assessed in light of its potential repercussions on inflation trends, which in turn affect forecasts and related decisions by the Federal Reserve. The MAGA (Make America Great Again) program risks having significant implications for the cost of living.

Some key examples include the impact of immigration on production costs and unemployment, as well as the burden of tariffs on the prices of imported goods. It is therefore not surprising that executives of major global corporations have once again highlighted the uncertainty surrounding the impact of the new political direction in the United States. A notable statement also came from Fed Chairman J. Powell following the January 30 meeting:
“The committee is awaiting further clarity on which policy decisions will be implemented.”

The governing committees of the world’s major central banks (with the exception of the Swiss National Bank, which is the only one to meet on a quarterly basis) held their first meetings of 2025 at the end of the month. No major developments emerged: the Fed decided to keep interest rates unchanged, while the ECB lowered them by 25 basis points, as widely expected by economists. Furthermore, transatlantic relations do not display the alignment that has characterized most historical periods.

In North America, the decline in the cost of living has stalled over the past couple of months, stopping short of making significant progress toward the central bank’s target—just as employment levels remain high. In Europe, however, the evolution of inflation allows the ECB to intervene in support of economic growth, which remains in need of stimulus.

PROSPECT

February begins with an escalation in the tariff war: the United States takes action, and the affected countries retaliate. The Trump administration breaks away from traditional diplomatic and economic practices across the board, adopting unprecedented strategies.

This results in an entirely new scenario, marked by uncertainty and an increasing risk of turmoil. Governments are forced to respond, while the economic world, destabilized, waits for greater clarity before resuming decisive action. The impact of all this on financial markets can be summed up in one word: volatility. Investors will attempt to interpret the unfolding events by carefully analyzing every macro- and microeconomic developments.

Economic data, central bankers’ moves, and signals from corporate earnings and outlooks will undergo intense scrutiny, heightening the risk of sharp market swings. The primary focus will inevitably remain on politics, particularly Washington’s initiatives. Meanwhile, in Europe, Germany’s snap elections, scheduled for February 23, and political instability in France add another layer of uncertainty.

Lastly, China continues to grapple with economic data that, so far, show no tangible effects from the stimulus measures implemented.