MACROECONOMIC OUTLOOK
Our positive global scenario driven by a strong USA economy (investment multiplier, fiscal loosening) meanwhile Euro Area growth lags (slowing international trade, detrimental bilateral trade deal with the USA, war in Ukraine) is still on as we enter the last two months of 2025. In the USA, despite the macroeconomic fog stemming from the ongoing shutdown, the outlook is still holding up well with no further weakening in the labor market and the continuation of the robust consumption trend. In Europe, the latest data has surprised to the upside especially in France. The news flow has also been positive in Asia thanks to the anticipation of the return of Abenomics in Japan and the tentative trade deal between China and the USA.
Still, November could prove choppy as looming risks persist, not least in the USA:
- The ongoing repricing in favor of the absence of an additional FED Funds rate cut in December. As stated by J. Powell following the latest FOMC, the rate cut, which was and still is the main market anticipation, is “not a foregone conclusion, far from it” given the ongoing strength of the US economy.
- The Supreme Court ruling on whether Donald Trump has overstepped his constitutional authority with the use of the International Emergency Economic Powers Act to introduce reciprocal tariffs. The budgetary impacts of their potential cancellation would be high, sparking concerns about public debt sustainability. This does not change our long run call of a sustained trade war as the Trump Administration would find other means to reinstall the tariffs.
- Turmoil linked to the US government shutdown. Although their effects on the markets have historically been short-lived, the ongoing stoppage, now the longest in history, could prove problematic in an overall risk-off environment.
- Stretched valuations upending the otherwise robust 3Q25 corporate earnings season.
ASSET ALLOCATION
Our asset allocation is delivering positive returns YTD. Some marginal changes have been introduced to account for the technical correction risk (details on the left):
- We are a bit less negative on the USD given its temporary appreciation on the back of the ongoing repricing on the December FED Funds rate cut. Accordingly, we are temporarily back to neutral on gold with the strong performance as of late also weighing. Our long term views on both assets remain unchanged (structural USD weakness and gold strength).
- We have downgraded our view on high yield USA credit given turmoil in private and subprime segments although related jitters remain idiosyncratic.
However, as our positive scenario stays on and given the approaching year end, we are staying invested in both equities and credit: the rest of our allocation stays the same.
- On equities our skew goes to the USA and emerging markets (neutral stance on Europe and Japan where the upside from the upcoming stimulus is now fully priced in). On sectors, the AI narrative remains a must but stretched technicals call for selectivity and a stronger focus on associated segments (electricity utilities for example). Banks (excluding US regional banks with their exposure to subprime credit) are benefitting from steep yield curves, volatility (trading revenues) and a robust economy (low default rates). Geopolitical turmoil remains an aerospace and defense anchor. Trade tensions and polarization (in favor of the wealthiest households while the poorest face dire conditions) are weighing on staples.
- We are neutral on sovereigns as rates are now at an equilibrium. A residual risk stems from a technical sell-off in the USA on budgetary slippage concerns if the Supreme Court cancels Trump’s reciprocal tariffs. In this scenario, the equity correction could intensify especially in the most richly valued segments (tech).
