The Markets in 1Q25 will mainly focus on the emergence of Donald Trump’s administration. Many expect Trump’s threats of tariffs to be credible which would force producers to re-shore manufacturing in the US. However, the Macro Team sees this development as an unlikely one, the appointment of Scott Bessent and Howard Lutnick to represent Trump’s more moderate views to trade as both have been quoted as being in favour of using Tariffs as a negotiation tool rather than industrial policy.
US Federal Reserve’s hawkish forecast for rate cut has upended market expectations as inflation remains highly sticky. We agree with this expectations as we see inflation at elevated levels for 2025 due to developments in acyclical inflation and other measures of persistent inflation. It is not just shelter inflation that is a problem now.
For China, we see the Central Economic Working Committee announcement as a crucial one, outlining the pivot that the policymakers will undertake in the near future. They now seek to maintain a “moderately loose” monetary policy which is a switch from the “stable” outlook given. China economic woes is well discussed with exports being the recent source of support. Timid consumers, poor producer orderbook environment and growing number of “Zombie Companies” are all drags on the Chinese economy in the near term.
Bank of Japan’s unclear position has rattled the markets as the attempts to rationalize subsidies and weakening JPY has reintroduced inflation into the system. With stronger than expected 2H24 growth figures, the macro case for a Bank of Japan rate hike improves but the politics surrounding it remains an issue. The new coalition government has pressured the Bank of Japan to go slow in rate hikes and Governor Ueda seems to have taken a dovish tilt in recent weeks. Although our base case is for a Jan 25 rate hike, there is a credible risk that Governor Ueda opts against this.
Cambodia consumption improves on festive periods as tourist and consumers alike spend more than expected. Tourism is now creeping to pre-COVID levels as ASEAN tourist replace Chinese tourists which have still been reluctant to travel abroad. Although exports have been weak, we see this as a function of seasonal factors and 1Q25 should see some recovery and continued growth.
