Trump has destroyed the order established after World War II. He has burned bridges with Europe. He has imposed a very serious tax burden even on allied countries. In addition to his rapprochement with Russia, he continues to make very serious moves regarding Panama, Greenland, Gaza and Iran. Due to all this, the uncertainty index regarding economic policies has reached its peak.
The increase in uncertainty has brought strong sales to both stock and crypto markets. The positive atmosphere that started with Trump's election as president (Trump trade) is over. Gold continues to gain value. What should we expect next? Despite the uncertainties in economic policies, financial conditions are at their loosest level since the COVID period. I think financial conditions will continue to support real sector activities. Contrary to what is being said, I do not expect a recession in the US economy.
Economic activity in the US economy also grew in February (PMI index above 50.0 means "real-quantitative" growth). Estimates based on new orders indicate that the US economy will expand for the rest of the year. The idea that inflation in the US will be above expectations this year has been strengthened a while ago with the idea that Trump will make protectionist moves in terms of tax policies and expansionist moves in terms of fiscal policies. However, the PCE inflation that the Fed takes into account in the US has already declined significantly.
Accordingly, contrary to the markets, I expect two 0.25 point reductions from the Fed this year. I think that the interest rate reduction process will also be spread over three years and will support economic activity in the medium term. The US's rapprochement with Russia and burning bridges with Europe have mobilized Germany. It should not be forgotten that Germany established the Euro Zone by giving up the world's most prestigious currency, the Mark, in order to curb the Fed's dollar hegemony. The Euro Zone was structured on a "common currency", but there was nothing in common other than money. Fiscal policies, defense policies, and spoken languages were not common. I expect the Germans to take steps towards "common finance-common debt" after the US's recent moves. Do you think it is a coincidence that the stock market (German stock exchange - DAX index) has gained so much in a country where annual inflation is 2-3 percent?
Although PMI indexes indicate that economic activity in Europe will contract this year, I expect Europe to grow in the second half of this year because I expect the Russia-Ukraine tension to ease and the steps to be taken by Germany to create a positive atmosphere.
Although I do not expect growth at the level targeted by the government, I predict that China will stay afloat. The Middle East will continue to be the fastest growing region of the global economy in 2025. I expect non-oil economic activity to accelerate in the coming months in the United Arab Emirates, which has been experiencing strong growth despite slowing down recently due to geopolitical risks in the Middle East. I predict that the same picture will apply to Qatar and Saudi Arabia. The Middle East has just realized that "natural resources are actually a curse" and is in the process of a major mental transformation. This awakening will transform the Middle East into an important growth center in the coming years.
In short, my general expectation is that growth will continue in all four major regions. 2025 will be a year when global economic activity will revive (despite the peak of uncertainties regarding economic policies). Despite all the uncertainties and sharp declines in stock markets, the fear index, which shows the direction of money in global capital, being below the threshold value of 30, supports and will support the markets. Moreover, the futures market prices of the fear index indicate that there is no expectation of a permanent deterioration in the markets. In this context, I expect the S&P500 index to challenge the 6200 resistance this year. I do not think that the sharp decline in stock markets is the beginning of a bear market. I predict that the parity will follow a tight course in the 1.06 - 1.11 band in the near term.
The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.
