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Global financial markets are currently being pulled between two opposing forces: on one hand, the hope for falling interest rates, which has a positive effect; on the other, geopolitical tensions that could be exacerbated by Donald Trump’s presidency. “In this dynamic environment, different economic regions are entering the fray with very different conditions: weakness in Europe, strength in the USA,” says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

For months, the prospect of falling interest rates has been driving stock markets to one record high after another. This optimism is fuelled by the gradual decline in inflation rates, albeit with some volatility. “In both the US and the Eurozone, inflation rates have recently risen again,” explains Gerlinger. “Core inflation remains significantly above the central banks’ target.” Trump’s policies are likely to further stoke inflation. Firstly, announced import tariffs could drive up the cost of foreign goods. Secondly, the mass deportation of illegal immigrants could exacerbate the tight US labour market, further increasing wage pressure.

Central banks are therefore expected to proceed with caution. “The Fed will likely make no more than two to three additional rate hikes before observing the consequences of Trump’s policies,” predicts Gerlinger. Following a possible rate cut in December 2024 or January 2025, a pause in monetary policy is conceivable.

But Trump’s impact extends beyond prices and interest rates. “After his inauguration on January 20, 2025, issues such as tariffs, trade wars, deglobalization, deregulation, inflation, and their consequences for the economy will dominate – potentially leading to a restructuring of the entire global economic system,” says Gerlinger. However, the effect on the US may not be entirely negative: Trump’s economic policies could stabilize growth in the US and even provide short-term positive impulses. After all, he has promised tax cuts and a reduction in bureaucratic costs. “New record highs in US stocks are therefore likely in the coming weeks,” says Gerlinger.

The outlook for the rest of the world is less optimistic. Europe is already grappling with stagflation, and Trump’s policies pose additional challenges to its already weak economic growth. In Europe’s two largest economies, Germany and France, governments are collapsing due to votes of no confidence, prompting new elections that could bring fresh momentum: “A functional and stable government in Germany could lead to a turnaround in sentiment – similar to what happened in the UK,” Gerlinger notes.

However, the threat of a trade war continues to loom over markets, not just in Europe but also in China, which would be the hardest hit. “Even former beneficiaries of US trade policies, such as Mexico, could find themselves in the crossfire,” warns Gerlinger. The trend toward deglobalization and fragmentation of the global market is weighing on emerging markets as a whole, although India stands out among the major players. “As a predominantly domestically driven economy with consistently high growth rates, India could remain an attractive investment destination,” Gerlinger concludes.