2023-12-16 11:31:00
For Hans Bevers of Degroof Petercam: “It is obviously logical to want to link geopolitics and markets. But, despite everything, for the markets, what is more important is the economic scenario in terms of inflation, growth and interest rates. For markets, these metrics are more important than the election of Trump or Biden as president, for example.
Even if it is true that many observers are focused on the American elections next November and are worried about Donald Trump, whose degree of unpredictability they measure, wondering what he will do vis-à-vis from Ukraine, from China and Taiwan, from the Middle East… And this will happen in a world which is already particularly unstable at the moment. We are particularly aware of the risks of escalation in the Middle East and the consequences that this could have on the price of a barrel of oil, which is currently around $70. A surge in oil prices remains one of the major risks that could thwart an expected scenario of a soft landing for the American economy.
The other major issue, on a geopolitical level, will be to see how tensions between the United States and China evolve. These tensions already began under the Obama presidency but sharply increased under the Trump era. It is clear that Biden has also maintained tough rhetoric towards China. A second Trump term would once again increase uncertainty over US foreign policy.”
Why the geopolitical wind is blowing against Ukraine and challenging the West
Furthermore, according to Bruno du Bus of Fide Capital: “The question must be asked, of course, within the framework of a global approach to portfolio management. But discussing geopolitical risks and their possible impacts on economies remains a very delicate exercise. Indeed, it is difficult to correctly anticipate such major and impromptu events. We know what is happening in Ukraine, in the Middle East or what may be feared in Taiwan… But the origin of possible upheavals will rather be found at the political level next year. You should know that in 2024, more than 40% of the world’s population will be affected by elections. Which represents, in terms of impact, 60% of global GDP and… 80% of global stock market capitalization. There will of course be elections in Taiwan in January which could lead to an anti-Chinese or pro-Chinese result. In both cases, it carries risks, with the possibility of reactions from China or the United States allied with Europe, and possible repercussions on the global economy. In March, there will be elections in Russia, but they leave little room for surprise. In June there will be the European elections. In November, it will be the Americans’ turn to go to the polls. With one constant, everywhere, which is not to currently make decisions on the public debt; which shifts the problem to future governments. We will therefore have to be vigilant about this issue in the years to come. Finally, as we have seen, we must not underestimate the risks of local slippages, where conflicts are underway. But we have noted in the past that conflicts have, over time, a limited impact on financial markets. Which leads us to repeat that for next year, from an asset management perspective, geopolitical risks will be above all political risks.”
The American economy benefits
For Samy Chaar, chief economist of the Swiss bank Lombard Odier, it seems clear that the American economy will end up slowing down next year, under the pressure of the financial conditions imposed by the American Federal Reserve (Fed) through its policy monetary relayed by the banking sector. These conditions, he explains in an analysis released a few days ago, “should end up weighing on consumption in 2024; which will slow growth to less than 1%. We believe that the decline in inflation will make it easier to lower rates in the second half of the year.” Regarding the electoral deadline, the French economist believes that the score is far from clear. “The 2024 presidential race will be close. “A rise in unemployment, probable losses of Senate seats and a prolonged conflict in the Middle East could be all obstacles for outgoing President Joe Biden,” he explains. And there are other concerns, he notes, including the age of the current president. But opposite him, Donald Trump is under pressure from the courts for a series of facts which could ultimately deprive him of some of his voters.
Trump or Biden president? Important question but the markets are also watching the future balance of power in the American Congress. © (c) 2023 Andy.LIU/Shutterstock. No use without permission.
But what if the Republicans were to win on all fronts, in the House, the Senate and the White House? For Samy Chaar, the deadlines of the mandates of the Fed’s top leaders protect them from dangerous influence, until 2026 or beyond. But from his perspective, neither Democrats nor Republicans seem focused on widening the budget deficit in a tight credit environment.
At the economic level, Mr. Chaar brings together elements that advantage the United States over other economies, such as the power of household consumption, technological leadership with the development of AI, and the effects of heavy public investments implemented under this legislature.
Finally, according to Jérôme van der Bruggen and Hans Bevers of Degroof Petercam: “When we talk about the elections in the United States and their consequences on the country’s economy, the main question is undoubtedly not who Joe Biden or Donald Trump will win the presidential election. But rather to know what the balance of power will be in the American Congress, and therefore the majorities in the Senate and the House of Representatives. Several times, in the recent history of the country, these majorities have been asymmetrical and this has been a factor of blockage, even immobility on the economic level.
What is necessary, in these United States which really seem to be divided in two electorally, is a coming together movement to solve most of the problems we have today: in particular the problems of the climate crisis and trade balances in the world in general. For now, the only thing we see is a polarized world. Being optimistic, we can imagine that mentalities could be reversed and it is not at all impossible in the United States that we have majorities forming and tending to bring together politicians around the same cause. We see, for example, that Donald Trump is challenged in his own party by candidate Nikki Haley. It could radically change the perception we have of the American political landscape. And it could be a factor in bringing Republicans and Democrats together. In any case, this is what we should hope for in the coming year: political movements which would move towards more elements of unity than of division.”
Find here what 2024 has in store for investors:
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