Video transcript:
Welcome to our macro macroeconomic outlook as part of our 2025 series. In this video, we're going to cover three key topics: the economy, geopolitics, and the playbook for 2025.
The world economy
So first up, the world economy. Right now, the world economy is in a really interesting state. The US is absolutely humming along. Real GDP is at 2%, PMI’s are on the way up, and monetary policy is at a state where they're looking to cut rates. Whilst they're on hold at the moment, I think they're waiting to see how Trump politics play out after January 20th.
However, the rest of the world is not in the same state. The EU is in a slight amount of trouble, including Germany, where real GDP is less than 1%. Chinese GDP is also less than 5%.
So, what we believe is that the world is ready for another liquidity event, where we'll see central banks ease monetary and financial conditions for the world. Now, remember, in previous videos, liquidity is the key barometer for financial markets and is the key tailwind that we need to see for the financial markets to continue in 2025. We watch this space closely, but it is one of the most important things to watch.
Geopolitics
Second is geopolitics, this is an important area. One, because we're going to potentially see a ceasefire or a movement towards a ceasefire in the two geopolitical situations of the last couple of years. Firstly, the Ukraine war. And secondly, within the Middle East, particularly around Israel and Palestine.
However, and more importantly, this potentially gives us a time for the Taiwanese situation to come to the fore. Now, why is the Taiwan situation so important? Well, it's because we potentially see a direct interplay between the world's number one and number two economies going within a potential kinetic war.
What's important to note is whether the Chinese can handle a softening domestic economy, a demographic situation, as well as a potential tariff war being put on them by the new US government. So, we watch this space closely. And this is one of the more serious threats that we have seen for some time if it does escalate.
The 2025 playbook
And now the final part is the 2025 playbook. So, what are the important dates we want to look at for the current year ahead?
First and foremost is December 20th (2024). This is an important period where markets roll a lot of derivative products. And this is the important date that provides the positive seasonality or tailwind that we tend to see in every year, otherwise known as the Santa Claus Rally.
We will also be watching for January 20th (2025), when the new Trump government comes into play. And in those first 100 days, we’ll see how the Trump government plays out its policy stance and how its new cabinet is able to produce effective policy.
So, what that does is it leads us into June, and it's really the June-to-December period that’s perhaps the most important period, I think, that we'll be watching for. With a tailwind of liquidity added to the euphoria that we're seeing already in markets, looking at the cryptocurrency market, for example, we'll be watching for the level of euphoria in markets and whether we should be starting to de-risk our portfolios into market strength.
Unfortunately, we don't have valuations to rely on because valuations are very high. Right now, GAAP earnings are trading at 30 times multiple in the US, and we have local stocks, for example, CBA, trading well above consensus. In fact, it's trading at $156 when consensus is $106. So, we look for other barometers in the market to give us an idea of when to start thinking about moving against the herd.
Now, if you've watched previous videos, you've noticed, and we've always discussed this idea of technology and cryptocurrency as being one of the key barometers of liquidity and also consumer confidence. So, we're watching cryptocurrency closely, and we're seeing the impact that it has on technology stocks, and then for the rest of the S&P and perhaps the Russell indices.
Conclusion
So, there you have it. 2025 is set to be perhaps the most important year in this current business cycle. I hope this video has given you a couple of key things to think about and take away as you review your investment and trading framework for the year ahead.
All in all, I wish you a Merry Christmas and Happy New Year, and safe travels in 2025.
By Michael Bogoevski
Michael Bogoevski is a seasoned finance professional with over 25 years of industry experience. He holds a Bachelor's degree in Economics and a Joint Master's degree in Economics and Econometrics. Recognised as an ASX Accredited Derivatives Advisor, Michael also holds a CFA designation in Investment Management. During his 15-year tenure at CMC Markets, he led the Singapore operations for five years before taking on the role of Head of Distribution for APAC and Canada, based in Sydney. He is now the Head of Institutional Sales at CMC Connect ANZ.
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