Donald Trump was inaugurated last Monday as 47th president of the United States. Also, a look at Central Banks and the Bank of Japan.
Trump inauguration – No fireworks yet
Donald Trump was inaugurated last Monday as 47th president of the United States. He started his term with a record amount of more than 30 executive orders within the first five days, more than Biden, Obama or Trump himself in his first term. This confirmed expectations that Trump is serious about implementing policy much faster this time than in his last term. Key executive orders included declaring a national emergency for the Mexican border to tackle migration, declaring an energy emergency to increase drilling and partially reversing Biden’s climate policies. Crucially for markets, Trump failed to impose any tariffs, causing a 1.7% selloff in the US Dollar. The most recent stance is that Trump threatens 10% tariffs on China and 25% on Mexico/Canada from February. Betting markets assign at 85% probability for tariffs on Mexico and 75% for Canada before March, leaving currency markets in a limbo.
Central banks – No change in plans yet
The Fed will leave rates unchanged on Wednesday, amid an uncertain outlook under Trump. There are no new forecasts, but recent US economic data has showed continued strength. Surveys show optimism among corporates, the consumer is resilient, and the labour market shows few signs of weakness. The Fed will therefore not be in a rush to lower rates this year.
The ECB will cut rates by 0.25% to 2.75% on Thursday, one step closer towards neutral rates around 2%. Despite maintaining a meeting-by-meeting approach, leaked ECB sources last week confirmed the ECB looks to cut rates in several meetings ahead but then faces similar uncertainty as the Fed in the US. The ECB only presents new forecasts in March.
BoJ – Slowly up
The Bank of Japan hiked rates to 0.5% last week as expected. Ueda confirmed that the economic activity and prices have been developing in line, and the likelihood of reaching a stable price level is rising. The Bank raised their inflation forecasts to 2.4%/2.0% for 2025/26 respectively, by +0.5% and 0.1%. Wages continue to rise, and the weak yen and thus rising import prices is likely to support inflation. The outlook for policy ahead is mostly driven by the US economic outlook, despite the BoJ acknowledging rates to still be in deeply accommodative territory.
Algebris Investments’ Global Credit Team
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