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24 January 2025

Weekly Market View

The verdict on Trump’s Week One

Markets have cheered Trump’s Week One policy announcements. Global stocks and bonds rose, while the US dollar and oil prices fell, as Trump’s seemingly softer stance on tariffs against trade partners and his push to boost energy output eased inflation concerns.

A sustained equity rally will likely need lower US bond yields, weaker dollar and lower oil prices. For that, investors will need to see that Trump’s tariff threats are aimed at negotiating trade deals, perhaps even involving a weaker USD, instead of triggering an all-out trade war.

We expect the Fed to stay on hold next week until we have more clarity on Trump’s trade, fiscal, immigration and energy policies. However, the ECB is likely to cut rates amid rising growth risks.

We remain pro-risk in our asset allocation, with a preference for US equities and High Yield bonds, especially with companies on course to deliver yet another quarter of earnings beats.


What are the expectations from US technology and communication services sector earnings?

How should investors position in China following Trump’s announcements?

What is the outlook for USD/JPY after the BoJ’s latest rate hike?

Charts of the week: A promising start to Trump 2.0

Global stocks and bonds rose, while the USD fell, signalling investors approved of Trump’s Week One announcements

Performance of key asset classes since close of 17 January

S&P500 index and US dollar index (DXY)

Source: Bloomberg, Standard Chartered

Editorial

The verdict on Trump’s Week One

Markets have cheered Trump’s Week One policy announcements. Global stocks and bonds rose, while the US dollar and oil prices fell, as Trump’s seemingly softer stance on tariffs against trade partners and his push to boost energy output eased inflation concerns. A sustained equity rally will likely need lower US bond yields, weaker dollar and lower oil prices. For that, investors will need to see that Trump’s nuanced tariff threats versus China and neighbours Canada and Mexico are aimed at negotiating trade deals, perhaps even involving a weaker USD, instead of triggering an all-out trade war. We expect the Fed to stay on hold next week until we have more clarity on Trump’s trade, fiscal, immigration and energy policies. However, the ECB is likely to cut rates amid rising growth risks. We remain pro-risk in our asset allocation, with a preference for US equities and High Yield bonds, especially with companies on course to deliver yet another quarter of earnings beats.

Markets reassured by Week One announcements. Trump’s less hawkish tariff stance and his call at Davos for OPEC to boost oil output and central banks to cut rates drove the S&P500 index to a new record high, lowered bond yields and dragged the USD from its two-year highs. The US equity volatility index (VIX) fell, suggesting easing investor concerns, after Trump refrained from imposing blanket tariffs against trade partners. Instead, Trump threatened 25% tariffs against Canada and Mexico and 10% tariffs against China by 1 February, likely as an opening gambit for negotiations to reduce the US budget deficit and attract foreign investment. A trade deal, which also involves a pact with trade partners to weaken the USD, would be significant as it could trigger a revival of non-USD and Emerging Market assets. China will, of course, need to agree to such a deal and appreciate the yuan vs. the dollar. In Davos, Trump said he would rather not use tariffs on China. 

Bessent in charge? Negotiated trade deals would imply Trump is heeding the advice of his business-friendly Treasury

Secretary, Scott Bessent, whose views often contrast with ideological and hawkish positions of many other cabinet colleagues. Bessent, a career fund manager, believes the most prudent (and market-friendly) course for Trump to achieve his non-inflationary, pro-growth agenda would be by raising US potential growth to 3% from below 2% with the help of supply-side policies, including tax cuts and deregulation. He believes higher economic growth will help reduce the US budget deficit significantly from 6.6% currently, lowering US borrowing costs. The third element of Bessent’s “three arrows” policy proposal is to significantly boost US energy production, which, besides powering the Artificial Intelligence-led industrial revolution and putting the US in a leadership position, will also lower energy costs, and by extension long-term inflation expectations.

More policy clarity needed, keeping the Fed on hold: Although Trump signed a raft of executive orders on Day One and laid out his policy agenda at Davos, questions remain unanswered, including his approach to the upcoming debt ceiling (the US government will run out money to pay its debt in the coming months, unless the government makes significant spending cuts or raises the ceiling), how any spending cuts will align with tax cuts, and whether the proposed immigration curbs will be tempered. Trump’s success in reviving US energy sector investment to boost output and lower energy prices remains uncertain as well, with US drilling rig count falling to three-year lows. Given these uncertainties, the Fed is likely to stay on hold next week until we get more clarity on these issues.

Strong corporate earnings provide fundamental support to equities. Against the uncertain policy backdrop, we expect US corporate earnings surprises to provide fundamental support for US equity outperformance this year. After the solid earnings beats by major US banks, focus now turned to US technology and communication sector leaders. The consensus expects the two sectors and the overall S&P500 index to deliver 15%, 23% and 10.7% earnings growth in Q4 2024, respectively. Strong earnings beats would support our overweight stance on US equities globally, and technology, communications and financial sectors within the US (see page 4).

The weekly macro balance sheet

Our weekly net assessment: On balance, we see the past week’s data and policy as Neutral for risk assets in the near-term

(+) factors: Robust US housing data; Trump less aggressive on tariffs
(-) factors: US-led political and geopolitical risks; ECB gradual rate cuts


US housing starts picked up sharply and building permits beat expectations despite elevated mortgage rates

US housing starts and building permits


Euro area economic growth expectations remain weak amid trade uncertainty, high borrowing costs

Euro area and Germany ZEW survey expectations of economic growth


China’s industrial production and retail sales beat expectations in December, though fixed asset investment remained lacklustre

China industrial production, retail sales and fixed asset investment (YTD) growth

Source: Bloomberg, Standard Chartered

Top client questions

How have the Q4 US earnings fared so far? With major tech companies starting to report, what are your expectations?

The US Q4 earnings season has been resilient so far. As of 23-Jan, c.15% companies in the S&P 500 index have reported earnings, with overall growth of 18% y/y, according to Bloomberg. Communication Services and Technology were amongst the leading sectors, while Materials, Consumer Discretionary and Healthcare lagged.

Looking forward, we anticipate strong earnings momentum in Technology and Communication Services, supported by ongoing investments on AI infrastructure and semiconductor chips, robust holiday e-commerce sales, advertising growth, as well as a PC refreshment cycle to support tech hardware demand. In addition, President Trump’s announcement of a USD 500bn investment project on artificial intelligence (AI) is expected to further boost these sectors. However, we remain cautious on stocks with higher non-US exposures, given the risks of potential trade tariffs and retaliation measures. We expect earnings growth of 20.2% and 23.8% for Technology and Communication Services in 2024, and 20.2% and 14.5% in 2025. (Source: LSEG I/B/E/S)

— Michelle Kam, Investment Strategist


Projected earnings growth for US technology and communication services sectors in 2024-25 are well above that for the broader S&P 500 index

Projected earnings growth for US technology sector, communication services sector and S&P 500 index

LSEG I/B/E/S, Standard Chartered

What is the likely impact on UK’s bond yields from recent inflation prints and Trump’s proposed policies?

UK government bond (Gilt) yields have surged alongside Developed Market (DM) bond yields to date. The 10-year Gilt yield rose over 90bp since December before settling at 4.63% this week, underperforming major DM peers such as the US and German government bonds. The sell-off was largely due to the following factors. (i) The UK October budget, which boosted both growth and inflation expectations; (ii) Concerns about UK’s fiscal position, where front-loaded stimulus may need to be financed through increased bond issuance, higher businesses taxes, or spending cuts in other areas; (iii) Sticky inflation contributing to market concerns of a higher-for-longer rate environment.

Looking ahead, we believe several factors will be key to shape the direction of UK bond yields, including rate cuts by the BOE and UK’s economic growth trajectory. UK economic growth remains weak, with PMI declining and GDP growth stagnating over the last few quarters. Additionally, concerns over global trade following Trump’s inauguration have added to uncertainties. Lastly, the interest rate differentials, i.e. the spread between the UK and the US yields, along with term premium movements, is also key.

— Cedric Lam, Senior Investment Strategist


UK government bond yields still hover close to post-Global Financial Crisis highs

UK 10-year government bond yield

Source: Bloomberg, Standard Chartered

Top client questions (cont’d)

How should investors be positioned in China following Trump’s recent announcements?

China equities were mixed following Trump’s inauguration. Initial optimism about a softer stance on tariffs were tempered by Trump subsequent announcement of a possible 10% tariffs on Chinese imports starting February.

In addition, Trump has also signed an executive order to delay a ban on Tiktok for 75 days, highlighting its use as a potential bargaining chip in trade talks.  

We maintain a Neutral view on China equities within Asia ex-Japan, given the lingering political uncertainties, and structural concerns (e.g. deflationary worries and property sector downturn). Within China, we prefer onshore equities versus their offshore counterparts, given the former benefits more directly from any positive policy surprises. Our barbell approach focuses on opportunistic ideas in 1) China non-financial high dividend state-owned enterprises (SOEs), given their lower export exposure to the US, as well as the 2) Hang Seng Technology Index, which can outperform if the markets overestimate US and China tensions.

— Jason Wong, Equity Analyst


Barbell approach in opportunistic equity buy ideas on China non-financial high dividend SOEs and Hang Seng Technology index

Index of China non-financial high dividend SOEs, Hang Seng Technology and Hang Seng Index

Source: Bloomberg, Standard Chartered

What’s the outlook for USD/JPY after BoJ latest rate hike?

The widely expected 25bps BoJ rate hike was accompanied by slightly more hawkish tone from policymakers. The yen could strengthen in the near term, acting as a safe-haven amid potential trade tensions, similar to its reaction in 2018 after tariffs announcements. The USD/JPY fell 1.5% in two days after the 22 January 2018’s announcement of tariffs on washing machines and solar panels from China.  From a fundamental perspective, Japan wages are set to rise further this year, with business leaders and unions poised to agree to solid pay rise in their spring wage negotiations (shunto). Rising labour costs should support further BoJ rate hikes this year.

However, sustained yen strength faces challenge from elevated US yields due to resilient US economic data. Trump’s softer-than-expected stance on tariffs has eased some upward pressure on US yields and the dollar. Technically, if USD/JPY firm break below 153, it is likely to edge towards the next support at 148.6; with resistance at 160.

— Iris Yuen, Investment Strategist


More USD/JPY downside expected as the BoJ hikes rates

USD/JPY and technicals

Source: Bloomberg, Standard Chartered

Top client questions (cont’d)

What’s the outlook for USD/CHF?

SNB Chairman Martin Schlegel’s ultra-dovish comments have weighed on the Swiss Franc, with speculations about further rate cuts, opening doors for negative interest rates. However, Switzerland real interest rates remain the 2nd-lowest in G10 after Japan, limiting SNB’s room for aggressive rate cuts. He also noted SNB mandate is price stability in Switzerland. We see downside risk in USD/CHF due to profit taking and reduced fears around US trade tariffs near-term. As long as the 2024 highs of 0.9230 resistance holds, movements below 0.8730 are likely to be corrective. Technical indicators suggest continued near-term downward pressure, with our 3-month forecast for USD/CHF at 0.90, reflecting a rangebound outlook.

— Iris Yuen, Investment Strategist


USD/CHF faces key technical resistance at 0.9230

USD/CHF with technicals

Source: Bloomberg, Standard Chartered

Market performance summary*

Sources: MSCI, JP Morgan, Barclays Capital, Citigroup, Dow Jones, HFRX, FTSE, Bloomberg, Standard Chartered. *Performance in USD terms unless otherwise stated, 2025 YTD performance from 31 Dec 2024 to 23 Jan 2025; 1-week period: 16 to 23 Jan


Our 12-month asset class views at a glance

Economic and market calendar

The S&P500 has next interim resistance at 6,234

Technical indicators for key markets as of 23 Jan close


Investor diversity has normalised across asset classes

Our proprietary market diversity indicators as of 23 Jan close

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Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: In the UK, Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. This communication has been approved by Standard Chartered Bank for the purposes of Section 21 (2) (b) of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”) as amended in 2010 and 2012 only. Standard Chartered Bank (trading as Standard Chartered Private Bank) is also an authorised financial services provider (license number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. The Materials have not been prepared in accordance with UK legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Vietnam: This document is being distributed in Vietnam by, and is attributable to, Standard Chartered Bank (Vietnam) Limited which is mainly regulated by State Bank of Vietnam (SBV). Recipients in Vietnam should contact Standard Chartered Bank (Vietnam) Limited for any queries regarding any content of this document. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.