This year’s first quarter will be driven by US politics, economic data and global geopolitics. Also, a look at the US labour market.
Focus Q1-25 – Trump, data, geopolitics
This year’s first quarter will be driven by US politics, economic data and global geopolitics. Trumps inauguration is on January 20th and starting then he can use executive orders to impose policies around tariffs, immigration and energy. Betting markets assign 95% for executive orders on deportation within the first 100 days, but only 25% odds for immediate tariffs as negotiations are seen to be more likely. For the economy, the US labour market and inflation are in key focus amid the hawkish shift by the Fed in December. Last year’s Q1 inflation data was particularly strong, so a similar showing would pose a headache for Powell – the next release is 15th January. The labour market is now well balanced, but deportations and tighter border controls with Mexico may tip this into tighter balance. In the Eurozone, gas prices have recently risen meaning headline inflation is likely to rise. CPI releases start this week, and the next ECB meeting is on January 30th. In geopolitics, markets focus on near-term resolutions of the wars in Ukraine and Gaza – whereby betting markets see a higher chance for an end to Gaza (60%) than Ukraine (40%). The next election will be in Germany on February 23rd, with coalition negotiations likely to drag into late March/early April.
US labour market – NFP preview
The US likely added 150k jobs in December based on consensus forecasts, less than the 227k in November but around current trend-growth rate. The unemployment rate is expected to stay unchanged at 4.2% and average hourly earnings are seen to be unchanged at 4.0% YoY. November job growth had been stronger as workers returned from strikes and bad weather, such that October and November had been largely dismissed by Fed speakers as too noisy. US rates are only pricing less than two cuts for 2025 and a terminal rate of 3.9%, so that any weakness in the employment report is likely to see a larger reaction than strength.
Algebris Investments’ Global Credit Team
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