Investors spent December analysing the potential impact of a second Donald Trump presidency on markets. Will he reintroduce trade tariffs, or are such threats merely negotiating tactics to secure concessions? For example, if Europe agreed to increase defence spending – much of it with American companies – and purchase more US natural gas, would that be enough to satisfy his administration? We will soon find out.
Markets appear confident that a Trump presidency will boost US economic growth. However, with more substantial growth comes the risk of higher inflation. The most significant market movement in December was in government bond yields on both sides of the Atlantic. The upwards trend in yields continued into January.
The US 10-year Treasury yield ended 2024 at 4.58 per cent, a notable jump from the 3.87 per cent recorded at the start of the year. This month it reached a high of 4.8 per cent. Higher than expected inflation, higher US debt levels and rising debt servicing costs were behind this surge in yields. As we enter 2025, investors are closely monitoring these trends. A further rise towards 5 per cent could trigger a pullback in equity markets.