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The Week at a Glance – Trump is Letting Risk Assets Rally into a Red-Hot Economy

While a stronger economy and contained inflation data have let risk assets rally towards the latter part of last week, the current digital asset projects from Trump have delivered more fuel to the rally.
2025-01-20

Morning from Copenhagen.

The coming week is relatively quiet from a macroeconomic release perspective, but we will get a couple of S&P PMI numbers from around the globe, with the US, EZ, and UK business cycles being the clear focus.

Global business cycles are improving again, which presents a completely different picture from what we saw in November and the early parts of December when growth admittedly looked weak on a trend basis. While vulnerabilities still exist in forward-looking indicators for the Eurozone and especially the UK (where macro data have been incredibly weak lately), there are very few weakening indicators in the US. This, combined with a slightly weaker-than-anticipated CPI report last week, has created a very favorable environment for US equities. The current narrative suggests that the Fed will still cut rates into an improving economy. Spillovers to other indices in Europe and Asia were material last week, given that most major central banks are still expected to cut rates in 2025 (except the BoJ). However, we are not entirely convinced about the Fed’s role in this equation, as the economy is running far too hot for the Fed to justify cutting rates.

As a result, almost every single equity index and cryptocurrency is breaking out of technical trend channels after being in shorter-term bearish patterns. Let’s see if Trump manages to spoil the party, but judging by the reaction in the digital asset space today, it’s not unlikely that high-beta equities will continue to thrive this week.

Chart 1.a: UK remains the outlier in the global macro landscape

While a stronger economy and contained inflation data have let risk assets rally towards the latter part of last week, the current digital asset projects from Trump have delivered more fuel to the rally.

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