MACROECONOMIC OUTLOOK
An expected choppy November has not questioned our positive global scenario. The shutdown in the US is now over and key statistical publications are gradually resuming outlining a robust economy. Weakness in the labor market has not worsened. It is mostly due to supply issues and uncertainty favoring hiring freezes over layoffs. In Europe, the economy is still holding up well. Germany’s new budget, in line with the March 2025 recovery plan, will be a key driver in 2026. In Asia, the real estate crisis is still weighing on China where recent statistics have disappointed. In Japan, fiscal loosening is the name of the game, lifting the outlook for industrials whereas tourism may suffer from rising diplomatic tensions with China over Taiwan.
In December, we will be closely monitoring several potential market-movers:
- Upcoming central banks’ monetary policy committees, in particular, the FOMC’s (Dec. 10) and the BoJ’s (Dec. 19). In the US, J. Powell’s tone will be key as it may hint at what comes next in terms of cumulative easing. In Japan, any clear commitment to the continuation of tightening may fuel the sell-off in global sovereign rates, weighing in return on risky assets.
- Potential appointment of Kevin Hassett as FED Chair. Trump’s decision could come before Christmas, confirming the rumor and boosting rate cuts expectations.
- Supreme Court ruling on the use of the IEEPA to introduce reciprocal tariffs in the US. Expected between the end of 2025 and January 2026, any decision to suspend could lift the term premium on long-term treasuries.
- Gradual return of key statistics post shutdown in the US. Two may weigh in particular : the Non-Farm Payrolls report (Dec. 16) and the CPI (Dec. 18) both for November.
- 2026 French Budget. Two dates to watch closely: Dec. 19, the“Loi Spéciale” submission deadline; and Dec. 12, the Social Security Budget’s final adoption deadline before enactment by decree (“ordonnances”).
- Ongoing ceasefire negotiations between Russia and Ukraine, sponsored by the US, unlikely to succeed in the near-term in our opinion.
ASSET ALLOCATION
We are keeping our asset allocation, which is delivering positive returns YTD, unchanged in December. We are staying invested in both equities and credit, continue to watch out for FX risk (USD and JPY depreciation) and remain neutral on gold and crude oil given fundamentals and recent performance.
- On equities our skew continues to go to the US and emerging markets (neutral stance on Europe and Japan).
–> In the US, technology stocks are still a must but given their stretched technicals and the looming correction risk fueled by talks of a bubble, selectivity and caution should prevail. Banks (excluding US regional banks with their exposure to subprime credit) will keep on benefitting from steep yield curves, volatility (trading revenues), a robust economy (low default rates) and the ongoing deregulation (not least, eSLR recalibration). Geopolitical turmoil remains an aerospace and defense anchor. Trade tensions and polarization (in favor of the wealthiest households while the poorest face dire conditions) continue to weigh on staples.
–> In Europe, the same bias towards banks and aerospace and defense holds. On the latter however, watch out for volatility given the ongoing peace talks between Russia and Ukraine.
–> In China, our positive call is not broad-based, but rather focused on the ongoing battle for tech supremacy with the US. Hence, the focus is on tech stocks that are in direct competition with US counterparts but with lower valuations.
–> To end with Japan: Yen depreciation will continue to lift the outlook of exporters; banks may benefit from higher net interest margins (higher long- term yields) and industrials (nuclear energy, defense, tech) will be boosted by the new government’s expansionary budget.
- On fixed-income, we stay neutral on sovereigns as rates are now at an equilibrium. We continue to favor investment grade corporate bonds over high yields given compressed spreads and pockets of vulnerability.
