Good morning from Copenhagen. This year’s first nugget will be a bit longer and propose a trade idea for 2025.

Jay Powell surprised everyone just before Christmas by shifting the Fed’s focus from the labor market back to inflation. As we head into 2025, markets are currently pricing in 1.5 rate cuts for the year. We believe this projection is too conservative.

Firstly, the labor market seems poised to regain attention early next year. Hiring has essentially ground to a halt, and historically, this trend is often followed by an uptick in layoffs. Furthermore, the birth/death adjustment finally seem to be turning.

Secondly, significant pressure may come from the Trump administration, potentially pushing Powell and the Fed to cut rates. Lowering interest rates would help ease federal debt servicing costs, aligning with Scott Bessent’s goal of reducing the deficit to 3% of nominal GDP.

Thirdly, the momentum from the Inflation Reduction Act (IRA) and the AI boom over the past couple of years appears to be waning. Without a new driver of growth, we expect a convergence between private housing and construction payrolls.

Additionally, concerns over tariffs and a stronger USD may be overstated. Trump’s focus seems to be on supporting U.S. manufacturing, the stock market, and the broader economy—all of which would benefit from a weaker dollar. Interestingly, Javier Milei recently shared in a podcast that he views Trump as a proponent of free trade, suggesting that Trump’s use of tariffs may primarily serve as a negotiation tactic this time around.

Milei has reportedly been in frequent contact with Trump and his administration over the past few months. Perhaps his insights are worth considering. Overall, we are witnessing a tech-bro coup d’état unfolding before our eyes. Don’t midcycle that. Going long on SFRZ5 is a solid proxy for being bullish on all sorts of tech-linked assets this year as well.

Trade: Long SFRZ5