Monthly letter Novembre 2024

Key events

The U.S. presidential election, the most anticipated political event of 2024, did not disappoint expectations, catalyzing international public attention. The magnitude of the Republican Party’s victory went far beyond expectations, radically transforming the political landscape.

The new arrangement, with the opposition having a decidedly limited voice, offers a scenario in which the world most influential government can reorient its priorities without any particular contradictions. Prior to Nov. 5, such a radical shift appeared anything but a foregone conclusion, adding further to the significance of this outcome.

U.S. political events are significantly influencing what happens in many other parts of the world. The geopolitical situation, already complex due to the conflicts between Russia and Ukraine and in the Middle East, is adapting to a new dynamic: the parties involved seem to be directing their actions to take maximum advantage ahead of the change of administration in Washington DC.

D. Trump’s decisions on the composition of his cabinet are being closely scrutinized, with predictions on the scenarios that might ensue. The future U.S. president does not fail to send signals about his intentions, as evidenced by recent statements regarding the reorganization of relations with neighbors Canada and Mexico.

Trump’s rise to power is also being felt on the Old Continent, where Germany and France face significant political problems. In Berlin, the main political parties have already set an early election date as of February 23, 2025. In Paris, the government led by M. Barnier is still in office, but the specter of a no-confidence vote is becoming more and more concrete.

“… we will ensure that no Americans will be left behind in the next and Greatest Economic Boom, and Scott will lead that effort for me, and the Great People of the United States of America.”
(Trump endorsment for Scott Bessent)

The macroeconomy offered interesting insights. In the United States, economic trends continue to be of no particular concern. Inflation remained at the expected levels, although slightly above the 2 percent target set by the FED.

Against this background, the Fed more cautious approach to future interest rate cuts appears understandable. During the Nov. 7 meeting, however, a reduction of 25 basis points was decided upon, in line with market expectations. In Europe, by contrast, the economic picture is more complex, as confirmed by the publication of several lower-than-expected economic indicators.

As a result, forecasts for the ECB point toward more supportive action. However, any signals regarding cost-of-living trends are being watched carefully, as they could limit the central bank room for maneuver. In France, the risk of a government crisis has contributed to a marked rise in interest rates on government bonds. The spread between French and German sovereign bonds has reached highs not seen since the 2011-12 European government crisis.

Prospects

The commentary for the more immediate outlook cannot be separated from Trump’s comments and intentions even though he will take power officially in January 25.

The global geopolitical picture should therefore not differ much from that of November. Meanwhile, all major central banks will hold their final meetings for 2024: both operational decisions and forward guidance will be of great importance. Differences in the economic picture between the US and Europe will only make the risk of volatility in financial markets greater.

The outlook beyond next month remains positive in view of Trump’s pro-business attitude and the central banks’ focus on economic growth. In reality, the margins of error are small, which is why it is difficult to view the risks as actually contained.

We would like to take this opportunity to wish all of you and your loved ones happy end-of-year holidays, renewing the message expressed to you 12 months ago: may they bring comfort at a time of great uncertainty worldwide.