Monica Defend
The election of Donald Trump has brought renewed focus on inflation and its potential ripple effects on global markets. Over recent months, the combination of a resilient US economy, Trump’s anticipated victory, his key appointments, and inflation risks have driven shifts in nominal and real yields. Meanwhile, US equities and the dollar have surged, buoyed by optimism that Trump’s policies may bolster the US economy—though perhaps at the expense of Europe and parts of Asia.
Presenting their insights in the latest ‘Amundi Global Investment Views’, Monica Defend, Head of the Amundi Investment Institute and Chief Strategist, and Vincent Mortier, Group CIO noted, “while US policies will inevitably reverberate across European assets and emerging markets, their actual impact hinges on specific measures and countermeasures.”
“Tax cuts and deregulation proposed under US fiscal policy could provide a growth boost through 2025, but we anticipate they may weigh on growth in 2026. The rising fiscal deficit and national debt are significant concerns and could exert additional upward pressure on bond yields.
“On inflation risks, the Federal Reserve is walking a tightrope as it addresses the final stages of inflation. Policies around immigration control and import tariffs could exacerbate wage and price pressures. This may push the Fed to adopt a more data-dependent approach, likely easing less than currently expected. Such moves will also have ripple effects on global central banks, including the ECB.
“Balancing fiscal governance rules in the EU with the need to invest in productivity, competitiveness, and defence will be no small feat. Countries like Germany, France, and Italy will need to navigate these competing priorities carefully, especially in the post-election environment.
“China is unlikely to take a passive stance in response to US policies. We expect proportionate measures such as fiscal stimulus, export controls on critical minerals, or even devaluation of the yuan as part of their strategy to counter US trade actions.”
The combination of high asset valuations, rising bond yields, and inflation risks has created a challenging environment for risk assets. These factors support a continued rotation toward more attractively priced market segments. Defend and Mortier emphasised the importance of balancing market fundamentals with valuations and policymaking expectations.
They present the following investment overview:
Cross asset: we have upgraded US equities by turning positive on US mid-caps. US stocks should benefit from a combination of positive sentiment stemming from a growth impetus, potential deregulation and favourable tax policies. We also remain marginally positive on the UK and Japan. In fixed income, we remain constructive on US and EU duration and have raised our curve-steepening expectations. We think gold still holds the potential to offer portfolio stability. In addition, investors should consider maintaining safeguards on equities and duration, if US inflation surprises on the upside.
Duration is all about granularity and taking yield volatility into account: in the US, where we are close to neutral on duration, we think there is good value in the intermediate part of the yield curve. But we have tactically downgraded core European duration to neutral, and see political uncertainty persisting in the near term. In US credit, we remain tilted towards quality, and in securitised credit, we prefer high-quality AAA-rated debt in commercial real estate. Our stance is unchanged for EU credit.
Gains in US equities despite rising real yields indicate high market expectations: it is worth looking beyond over-priced stocks. The actual impact on growth would depend on the degree to which Trump’s agenda is implemented. Instead of playing this positive sentiment through expensive large caps, we prefer to rely on areas that display better valuations, such as S&P equal-weighted, value and quality. In Europe, stock picking is likely to gain importance, as weak domestic demand meets uncertainty on international trade.
Emerging markets are home to many uncorrelated bottom-up stories, but US rates are a risk: thus, we remain vigilant and selective, preferring countries such as Turkey and South Africa in local currency debt. In hard currency and corporate credit, we are positive. In equities, we are slightly less constructive on Brazil but remain positive on Indonesia and India.
“As markets adjust to Trump’s agenda and inflation risks unfold, the focus will remain on how global policies evolve and how markets respond. Investors are urged to stay vigilant and flexible, balancing exposure to attractive opportunities with robust risk management. The coming months promise to be pivotal as the world watches how the interplay between US policies, inflation, and global markets shapes the investment landscape,” they concluded.
