IntaCapital Swiss, Author at IntaCapitalSwiss SA

The European Central Bank Cuts Interest Rates January 2025

Written by IntaCapital Swiss on February 3, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

For the fifth time since June 2024 on January 30^th, 2025, the ECB (European Central Bank) once again cut interest rates to the key deposit rate by 25 basis points to 2.75%. ECB officials announced that they will continue to describe their stance on monetary policy as restrictive, indicating there are further interest rate cuts to come especially as their target inflation of 2% is within reach. Officials went on to say that disinflation is on track, but services inflation remains sticky at 4% but they expect that to come down during the course of 2025.

The President of the ECB Christine Lagarde advised that the vote by the governing council on cutting interest rates was unanimous, however ECB officials reiterated that they were not pre-committing to a particular rate path. President Lagarde followed up on her officials by saying “We know the direction of travel, and for those who would like to have solid forward guidance, it would be totally unrealistic to do anything of that nature, simply because we are facing significant and probably rising uncertainty at the moment”. Experts suggest that statement may well be directed at President Trump and his tariffs and a possible trade war.

Indeed, the major source of uncertainty at the moment is President Donal Trump’s threats of tariffs and the ensuing trade war. It has been noticed by all in the financial world that the United State’s very own Federal Reserve is already limiting rate cuts until they see the outcome of the new administration’s policies. Sadly the eurozone’s economy is currently in the doldrums and a trade war with the United States could well have a negative impact on inflation.

Currently the prospects for the eurozone’s economy are dim, mainly due to the two powerhouses Germany and France who underpin the economy, are both suffering from political and economic turbulence. Indeed, recently released GDP (Gross Domestic Product) figures showed the eurozone unexpectedly stagnating at the end of 2024 and President Lagarde was noted as saying “Europe’s economy will remain frail in the near term, with risks to the outlook still tilted to the downside due to the possibility of greater global frictions”

Analysts suggest that the restrictive policy wording from the ECB and President Lagarde’s positive words on inflation has encouraged investors to think that there are more interest rate cuts coming in 2025. In the financial markets traders have increased bets on three further interest rate cuts in 2025 at 25 basis points per cut, with experts predicting the first of these at the next policy meeting of the ECB on the 5^thand 6th of March 2025.

On a different note, whilst President Trump is pro-Bitcoin and crypto in general, ECB President Lagarde rejected the idea of incorporating Bitcoin into European reserves on the basis that it is too volatile and associated with anti-money laundering. She went on to say that “Reserves have to be liquid, reserves have to be secure, they have to be safe, they should not be plagued by the suspicion of money laundering or other criminal activities.”.

Federal Reserve Holds Interest Rates Steady January 2025

Written by IntaCapital Swiss on February 3, 2025. Posted in News & Reports. Leave a Comment

On Wednesday 29^th January 2025, the Federal Reserve announced that after lowering interest rates by 100 basis points in the last few months of 2024, they were holding interest rates steady in a range of 4.25% – 4.50%. The FOMC (Federal Open Market Committee) had no dissenting voters as they agreed unanimously to press the hold button on interest rates. The Chairman of the Federal Reserve said “We do not need to be in a hurry to adjust our policy stance” adding that the Federal Reserve was pausing interest rates in order to see further progress on inflation which currently remains somewhat elevated but has moved closer to the goal of 2%.

Currently some analysts are saying that the US economic landscape appears stable but at the same time wildly uncertain especially as recent macroeconomic fundamentals have been unchanged and healthy. However, with the elevation of Donald Trump to the White House Chairman Powell noted “Federal Officials are waiting to see what policies are enacted” and what effect such policies (tariffs, taxes, immigration) will have on inflation. Experts have said that the prospects of tariffs on Mexico and Canada, who are two key trading partners with the United States, have cast a shadow over the economy of the United States.

Following the announcement that the Federal Reserve were holding interest rates, President Donald Trump renewed his attack on the central bank saying they had “failed to stop the problem they created with inflation”. Previously, President Trump had demanded that interest rates come down further, but Chairman Powell, who is doing his best to keep himself and the Federal Reserve above political machinations noted that keeping interest rates on hold was not political despite the fact it may look that way. The president also went on to say that the Federal Reserve has “done a terrible job on bank regulation” and insisted he will put this responsibility solely within the purview of the Treasury Department. However, some legal experts have said that this would be against the law.

In December 2024 Federal Officials advised that they expected only two rate cuts throughout the whole of 2025, which was a reduction in policy that had not been previously anticipated by the financial markets. Recent data released showed that in December 2024, an underlying measure of consumer prices rose by less than anticipated being the first decrease since June 2024. Analysts have looked back at President Trump’s first stint in the White House where he promised more tariffs on countries exporting to America, taxes on workers and companies will come down, and a massive number of jobs and factories will come home. In the end the exact opposite happened, and the Federal Reserve faced a slowing economy led by factories announcing many redundancies. So perhaps Chairman Powell and his officials can feel somewhat vindicated by keeping rates on hold.

Dispersion Trades Come into their Own Amid Sell-off in Tech Stocks

Written by IntaCapital Swiss on February 3, 2025. Posted in News & Reports. Leave a Comment

On Monday 27^th January 2025 global investors dumped tech stock as a new player from China called DeepSeek, emerged in the AI (artificial intelligence market) threatening the dominance of the United States as companies such as Nvidia had a record one day loss of circa USD593 Billion. Other major shares tumbled such as chipmaker Broadcom down 17.4%, Alphabet fell 4.2%, and Marvel Technology fell by 19.1% to mention but a few. The catalyst for this fall was DeepSeeks AI model named RI which by all accounts uses less data at a fraction of the cost compared to that of the competition.

Many hedge fund traders saw an opening for dispersion trades which buys options in single stocks and sells contracts on an index and as such this trade had its best day since 2020 as fears for A! spread through the market like wildfire. The dispersion trade therefore is a bet on an index remaining calmer than its individual stocks. Once the domain of the hedge funds, the dispersion trade is now offered by banks to their clients which they have packaged into easy to access swaps. The Cboe S&P 500 Dispersion index* enjoyed its biggest gain since 2022.

*Cboe S&P Dispersion Index – This index may provide an indication of the markets perception of the near-term diversification or equivalently, an indication of the markets perception of the near-term of idiosyncratic risk in the S&P 500’s constituents. In simple terms dispersion refers to the range or spread of individual stock returns around the index’s average return.

Essentially dispersion trading is a form of arbitrage, specifically volatility arbitrage which as mentioned above is betting on the volatility of individual stocks against a more placid index where the stocks are quoted. A simple explanation of arbitrage is the selling and buying of the same stock, currency, or commodity at the same time in two different markets but where there is a small price differential. The profit between buying at the lower price in one market and selling at the higher price in another market is known as arbitrage trading.

Elsewhere, the sell off in tech stocks benefited a number of quant trades where the trading model is going long on some stocks and short on others. This is a strategy that buys steady stocks and sells the opposite (in this case tech stocks) which according to analysts jumped the most since 2020. Again, when the two positions are traded out the profit (or loss) is the arbitrage from the two trades.

Trump, Tariffs, BRICS, and Artificial Intelligence

Written by IntaCapital Swiss on January 29, 2025. Posted in News & Reports. Leave a Comment

In his latest pronouncements on tariffs, President Trump announced that he would enact cross-border tariffs higher than 2.5%, a figure apparently propounded by the incoming Treasury Secretary, Scott Bessent. The President told reporters aboard Air Force One that “I have in mind what it’s going to be, but I won’t be setting it yet, but it’ll be enough to protect our country”. This is yet another signal from the President that he is prepared to reshape supply chains through the introduction of tariffs in order to put “America First”.

President Trump went to tell reporters that he would be using tariffs to target specific sectors such as aluminium, copper, pharmaceuticals, semiconductors, and steel. He also advised that he may well target Mexico and Canada with tariffs on their automobile exports to the United States, the same countries that he has already targeted with tariffs of 25% on all exports to the USA (to be imposed on 1^st February 2025). President Trump’s underlying belief is that tariffs on countries exporting to the United States will increase the number of jobs at home, bring factories back, and taxes on businesses and individuals will come down.

Interestingly, the threat of tariffs on the semiconductor sector came shortly after the Chinese start-up on AI (artificial intelligence) DeepSeek* not only worried investors but erased billions from the market capitalisation of Nvidia Corp**. It appears the DeepSeek model can be as effective as other well-known AI models but at a fraction of the cost. This has translated into less data centres signing up to the likes of Nvidia, as DeepSeek can drive down the consumption of electricity, and they now challenge the assumption that the United States hold dominance in the AI market.

*DeepSeek – Until very recently, DeepSeek was a little known Chinese start-up, but has sent shockwaves through the tech market having released an AI model named RI that can outperform leading developers from the United States such as Nvidia, OpenAI, and Google. Is reported that DeepSeek only had a USD 6 Million budget to produce RI, as opposed to the multibillion dollar budgets employed by their US counterparts.

**Nvidia – Is famous for accelerated computing to tackle challenges no-one else can and their work on AI and digital twins is transforming the world’s largest industries. Their work on AI using a GPU (graphics processing unit as opposed to a CPU – central processing unit) allows them to crunch massive amounts of data for AI much faster. When RI cast doubt on the supremacy on of US tech firms, Nvidia shed circa USD590 Billion in market value which was the biggest fall in US stock market history.

President Trump said of DeepSeek, “The release of DeepSeek should be a wake up call for our industries and that we need to be laser-focused on competing to win”. On Monday 27^th January 2025, there was a major market fall-out regarding DeepSeek, with technology stocks in Europe and the United States falling by circa USD1 Trillion, with investors now questioning the spending plans of some of the biggest companies in the USA.

On the tariffs front, experts are saying this economic tool will not just be used against those countries with just a trade surplus with the United States. Indeed, President Trump will use tariffs in other areas such as the recent spat with Colombia, where the country’s President Gustavo Petro barred and refused landing rights to two military flights from the United States carrying deported Colombians. President Trump threatened punitive tariffs of 25% on Colombian exports to the USA unless the Colombian acquiesced, and despite counter tariffs being threatened, President Petro agreed to accept migrants (including those arriving on military aircraft) without limitation, hindrance or delay.

Elsewhere on the Trump/Tariff radar, Europe and the EU bloc has been threatened with tariffs regarding those countries with trade surpluses and those countries (just about all of them) which President Trump believes aren’t paying enough on defence. Also on the radar are the BRICS* nations, who Trump has promised to impose 100% tariffs on should they try and create a rival currency to the US Dollar. Leading politicians within the BRICS have already floated the idea of a rival currency.

*BRICS – is recognised as a group of emerging market countries and the acronym stands for Brazil, Russia, India, China, and South Africa. Originally the acronym was BRIC (as South Africa was not part of the founding members) and was coined in 2001 by a Goldman Sachs economist Jim O’Neill. On January 1^st, 2024, Egypt, Ethiopia, Iran, and the United Arab Emirates joined BRICS, who also announced that their newest member is Saudi Arabia, but the United Kingdom has yet to put pen to paper so as yet have not officially joined

Over the last 24 years, BRICS has grown into what is effectively a world club comprising of ten member states, some of whom are major energy producers such as the United Aram Emirates, whilst others are recognised as the largest consumers amongst the emerging or developing economies. Many western commentators feel that BRICS, led by China, are an anti-western organisation and have ambitions to have their own currency moving away from global reliance on the US Dollar.

Many experts feel that President Trump will stay true to his word and invoke tariffs on many countries, including America’s allies. He is especially adamant about those countries he feels will do the United States harm and he has named Brazil, India, and China in that bracket. How far the President will go with tariffs we will have to wait and see, but with China upending the Artificial Intelligence sector, it looks like certain countries are in for a bumpy ride.

The United Kingdom Becomes Europe’s Top Destination for Investment

Written by IntaCapital Swiss on January 27, 2025. Posted in News & Reports. Leave a Comment

Despite much rancour regarding the Chancellor of the Exchequer’s budget on 30^th October 2024, PWC’s annual CEO survey has shown that the United Kingdom has leapfrogged Germany to become Europe’s top investment spot, and has claimed second spot behind the United States in the global rankings. Indeed, the survey of circa 5,000 chief executive officers put the United Kingdom ahead of China, Germany, and India, with such news no doubt coming as a relief to the somewhat embattled chancellor Rachael Reeves, especially after recent turmoil in the UK government bond market.

The Chancellor has been quoted as saying “These latest results show global CEO’s are backing Britain as the UK is one of the most attractive destinations for international investment, and it’s this investment that will help economic growth and improve living standards across the UK”. The senior partner of PwC UK Marco Amitrano was also quoted as saying “ “a vote of confidence in the UK as a place for business and investment”. The cabinet is united in the fact that the government has a safe and secure majority which, unlike some of the larger EU economies that face both economic and political instability, will encourage investors to use the United Kingdom as a safe haven for investments.

However, experts suggest that this labour government should not become complacent, as putting the United Kingdom back at front and centre of the global stage requires a realisable path towards growth and a government that has an approach that is consistent towards investment and business. Currently, the Chancellor is attending the Davos summit in Switzerland where she will highlight the United Kingdom as a safe and politically stable investment partner. She will be emboldened by the fact that first data released by the IMF (International Monetary Fund) last week upgraded its forecast growth in the United Kingdom from 1.5% to 1.6%, and second figures released at the end of last week show lower than expected inflation figures paving the way for a rate reduction by the Bank of England.

Recent data released by the ONS (Office of National Statistics) showed inflation for December 2024 slowing to 2.5% down from the November figure of 2.6% a surprise for many analysts who had predicted inflation either holding steady or rising to 2.7%. The biggest drivers in December’s inflation figures were the easing of tobacco costs and the easing restaurant and hotel costs, and whilst still rising, they reflect the slowest pace since July 2021. Experts now suggest these latest inflation figures have opened the way to cut interest rates by 25 basis points to 4.75% in February. However, despite December’s drop in inflation, experts have warned it could rise again in the coming months fuelled by rising energy bills. Still, the Chancellor will be buoyed by the fact that inflation is down, rates could well come down, the United Kingdom is top of the investment tree in Europe and second in the world, a turnaround from the financial machinations of last week.

Global Energy Overview for 2025

Written by IntaCapital Swiss on January 22, 2025. Posted in News & Reports. Leave a Comment

Data released showed that 2024 saw a record uptake in renewable energy, EV’s, and other areas, however experts predict that in 2025 the demand for fossil fuels is expected to increase by more than 3 Million BOE/D*. At the same time, analysts suggest that CO2 emissions associated with the combustion of fossil fuels will reach a new record high, but will be the smallest increase since the end of the pandemic.

*BOE/D – This is an acronym for “Barrels of oil equivalent per day”, and is a term used in the gas and oil industry as a measurement used to describe the amount of energy produced or consumed in a day.

2025 will be a year of uncertainty as, according to experts, war zones such as Ukraine and Gaza have the potential to significantly alter energy markets. Further geo-political problems and polarisation between China and the western nations add to this uncertainty, with President Trump promising tariffs and Europe using tariffs to protect their markets, whilst China are looking for greater global influence by leveraging their position as a leader in clean technology.

There are a number of areas to be aware of in 2025 some of which are outlined below.

President Trump

During his 2024 campaign, and the build up to his winning the 2024 presidential election, it became, according to experts, obvious that the second term of President Trump (or Trump2) will follow a very different path on climate policy and energy to that of out-going President Joe Biden. First, it appears that the new administration will pull out of the Paris Agreement* and an increasingly negative attitude towards a somewhat weakened COP**.

*The Paris Agreement – Also known as the Paris Accords or the Paris Climate Accords, is a legally binding international treaty signed in 2016 and covers climate change mitigation, adaptation, and finance. There are circa 195 members of the UNFCCC ( United Nations Framework Convention on Climate Change). The United States withdrew in 2020, rejoined in 2021 and are expected to withdraw again under the new administration. The overriding goal of the agreement is to limit the global temperature increase to 1.5 degrees C and to hold the increase in global average temperature to well under 2 degrees C, both above pre-industrial levels.

**COP – The Conference of the Parties attended by governments that have signed the United Nations Framework Convention on Climate Change, (UNFCCC), a treaty which was created in 1994. The conference meets once a year and assesses global efforts to advance the key Paris Agreements aimed at limiting global warming.

President Trump and his new administration have said they will increase US oil and gas production by promoting drilling and offshore and federal land exploration. They have also expressed their desire to increase LNG (Liquid Natural Gas), making the United States a bigger player in the market. They may hope to take advantage of European markets, who will be seeking alternative suppliers to Russian gas. The implications of such a policy may well depress global energy prices, however such downward pressure could be offset by OPEC+ adjusting production quotas. Analysts also suggest that an increase in geopolitical tensions, for example with Iran prompting a reduction in Middle East supplies, could offset any increases in production from the United States, all of which could lead to prolonged price volatility.

Total energy demand: Fossil fuels vs. clean energy

Apart from various economic recessions and the Covid-19 pandemic, there has yet to be a year when green/clean energy (nuclear, hydro, solar, wind, and other renewables) supply has resulted in the reduction in the use of fossil fuels. Experts suggest that 2025 will see robust growth and above-trend in energy demands, but even the fast growth of clean energy (over 5 Million BOE/D) it is not enough to curtail the demand for fossil fuels, let alone displace that demand. It is expected that fossil fuel demand will increase by more than 3 Million BOE/D resulting in record high CO2 emissions.

Nuclear energy

Experts advise that nuclear energy is on the up especially in the United States, and for decades has proven to be a reliable and stable source of clean energy resulting in a carbon-free provider of electricity. Many companies are trying to decarbonise and interestingly in 2024 Amazon, Microsoft, and Google all signed power supply agreements with ties to nuclear capacity to help feed their growing data centres.

Analysts suggest that in 2025, nuclear power generation will reach unprecedented levels, with a number of countries ramping up production in Asia and Europe. The IEA (International Energy Agency) has advised that the report from “The Path to a New Era for Nuclear Energy” says the strong comeback to nuclear energy, as advised by the IEA several years ago, is well underway and 2025 will be a record year for nuclear powered generation of electricity.

The price of Uranium has been an indicator as to how nuclear power is on the way up. Over the last five years, the price of Uranium has soared by 255% which confirms the demand for the commodity is on-going. This strategically important metal owes its current value to the increase in nuclear powered plants in the shift to green energy plus a number of global economic factors which have also had a significant bearing on its current value. The long-term outlook for Uranium is bullish as across the world there are currently 61 nuclear reactors under construction, plus a further 90 reactors are in the planning stage with in excess of 300 in the discussion phase.

Consumption from data centres and AI

Experts suggest that in 2025, as Artificial Intelligence a datacentres expand, the demand for electricity will increase to such an extent it could fundamentally effect the trajectory of global power demand. Indeed, analysts see the demand for power between 2025 and 2030 through the increasing number of datacentres will increase by 10% – 15% per annum. In developed countries, datacentres have accounted for a circa 3% increase in power requirements, which may have taken clean power away from the grid and has possibly aided the on-going consumption of fossil fuel generated energy.

Liquid natural gas

After two years of relative inaction and limited growth, experts see 2025 as a year of significant change in the LNG market especially as there will be an increase in liquification capacity coming out of the United States and Canada. Analysts suggest there will be an increase in capacity of circa 27 Million mt (metric tons), 90% of which will emanate from North America, with a number of facilities all expecting to ramp up production in 2025.

Analysts advise that total global growth projections for 2025 and 2026 currently show and an increase of 2.3%. Interestingly, in Q3 2024 y/y (year-on-year) European gas imports from outside the bloc suffered a 10% decline, and if the Russian gas transit through Ukraine agreement is not renewed, in excess of 5% of their needs will have to be sourced elsewhere such as the USA and Canada. All in all, experts suggest that exports of natural gas by pipeline will increase in 2025 by 2.9 Bcf/d (billion cubic feet per day) with the bulk of the increase coming from LNG.

Coal

Analysts predict that in 2025 global demand for coal will continue to grow in spite of renewable installations hitting record highs. Demand for coal reached new records in 2023 and 2024, and as indicated above the increased call on energy from datacentres and the charging of EV’s has increased the demand on fossil fuels, despite record growth in renewables. Interestingly, some experts suggest that demand for coal in Europe and other developed economies may indeed fall, however, data released shows China represents 60% of global coal consumption and despite renewables increasing the country, can expect another record year for coal fired energy consumption.

India is also expected to hit new highs on coal fired energy consumption and demand in the United States is expected to rebound significantly in 2025 after decades of decline. Whilst some analysts expect coal consumption to remain broadly flat the expected increase from China will have a large impact on prices though renewables will increase and begin to eat into their coal consumption. Experts in this arena expect demand to be in the region of 8.77 Billion tonnes for 2025 but all eyes will be on China to see if they reduce their coal consumption.

Jet fuel demand

Post pandemic, airline passengers figures have been increasing year on year, and experts from IATA (The International Air Transport Association) predict air passenger numbers to top five billion for the first time with the sectors revenues breaking the trillion US Dollar mark in 2025. They also added that the accumulative cost of jet fuel will be USD248 Billion, circa 5% below that of 2024 with fuel consumption rising y/y (year-on-year) to 107 billion gallons up 6%, a number in line with what airlines have been reporting over Q3 and Q4 2024. IATA suggests that data shows that overall costs for the airline industry will rise by 4% in 2025 to USD940 Billion of which jet fuel costs total 26.4% down 28.4% from 2024.

Renewables

In the renewables arena, experts suggest that this sector will go through major transformations in 2025. New advancements in this sector come quick and fast, with new energy technology and government policies all favouring renewables. Indeed, in the United Kingdom Energy Secretary Ed Miliband looks to turn the country into a solar energy and wind turbine farm.

Predictions from the IEA (International Energy Agency) suggests that in 2025 renewables will be responsible for providing circa one third of the worlds electricity needs, and by 2028 90% of the worlds energy requirements will come from renewables. Data released indicates that solar energy will be the dominant renewable power in a number of countries in 2025, and global capacity doubling in 2026 closely followed by wind energy.

There is a renewables gap, where demand is outstripping supply, and the race is on to fill that gap. For the first time in history, 2025 will see Asia account for 50% of the world’s electricity consumption with China consuming one third of global electricity.

OPEC and OPEC+

OPEC is a synonym for The Organisation of Petroleum Exporting Countries and was founded in Baghdad in in 1960. The original members are Iran Iraq, Kuwait, Saudi Arabia, and Venezuela, and today the current organisation has twelve member countries. OPEC control circa 35% – 38% of global supply of oil, but according to current estimates they own circa 80% of proven oil reserves.

In late 2016, the members of OPEC signed an agreement with ten other oil producing countries to form what is known today as OPEC+. Among these countries was Russia who at the time produced 13% of total global output of oil. Today OPEC+ controls circa 48% of global production.

Analysts suggest that 2025 could well be an unpredictable year for OPEC+, with tariff threats from President Donald Trump and the continuing war zones of Israel/Gaza and Russia/Ukraine presenting challenges to their ongoing strategies. OPEC’s forecasts for 2025 is for oil demand to reach 104.2 Million b/d (barrels per day) in 2025 and an increase to 106.6 Million b/d in 2026. Robust demand is expected to come from developing countries where data shows that consumption will almost double with Asian countries being key, and India and China being central to this growth.

OPEC+ analysts predict the price of Brent* crude oil will average USD74, down 8% from 2024, and will fall another 11% in 2026 to USD66 per barrel. OPEC sellers such as Saudi Aramco will sell their Arab Light into Europe plus or minus Brent, depending on their appetite for more or less market share.

*ICE Brent Crude – Is the benchmark used for light oil markets in Europe, Africa, and the Middle East. Saudi Arabia also use the Argus Sour Crude Index for their flagship Arab Light Crude for North America, and Oman and Dubai Indexes for East Asia.

Conclusion

2025 will see an increase in the demand for fossil fuels despite record output from the renewables arena. The price of a barrel of oil is expected to come down unless geopolitical problems once again explode, putting upward pressure on prices. All eyes will be on renewables to see if they outperform expectations with particular eyes on the nuclear sector as it becomes more and more popular. Finally, there is the Trump.20 presidency whose policies on tariffs could, according to experts, significantly impact many sectors within the energy arena. Only time will tell how this will play out.

The Eurozone is Struggling: it’s Time the ECB Stepped up to the Plate

Written by IntaCapital Swiss on January 15, 2025. Posted in News & Reports. Leave a Comment

Many commentators, expert analysts, and economists are in agreement that the eurozone is in for a tough time in 2025, especially as its economic engine, which is driven by France and Germany, are both suffering from economic and political instability. The Euro is not in crisis, yet, but there is complacency with the walls of the ECB (European Central Bank). Monetary policy from the ECB has not been enough to ignite investment, whilst confidence and growth is suffering from economic imbalances between North and South and geopolitical divisions between East and West.

Looking back to 2012 when the Euro, was last in a severe crisis, the then ECB President Mario Draghi took what many commentators described as some breath-taking measures to save the Euro. At the time, he was given virtually carte blanche to do what he had to do, and the crisis engulfing the eurozone’s sovereign debt quickly passed. Recently, Draghi penned a report* to removing the structural barriers to growth, which sadly appears to be languishing in some policymakers’ desk draw.

*The Mario Draghi Report in a Nutshell – The report was commissioned by the European Commission President Ursula von de Leyen, released in September 2024 is a blueprint for EU policy making. The report aims to address Europe’s economic challenges and competitiveness by proposing a new industrial strategy.

The current President of the ECB Christine Lagarde (aka Madame Euro), along with her policy makers, have been concentrating on inflation-busting monetary policies, having cut interest rates (four interest rates cut since June 2024) quicker than either the Federal Reserve and the Bank of England. Whilst this action is totally laudable, now, according to experts, is the time to bring on heavy duty policies with regard to growth. Recent data released shows that growth in the eurozone is expected to be under 1% in 2025. Furthermore, comparing GDP per capita between the United States and the eurozone since 2019, the eurozone is up 2.5% compared to the United States which is up 7.9%.

Analysts suggest that President Lagarde is facing a make-or-break 2025, especially with the Euro under threat, France and Germany being “up the proverbial creek in a wire canoe without a paddle”, potential tariffs looming from a Trump2 presidency and China’s export market beginning to show signs of improvement. Most commentators are aware that the Euro blocs’ central bankers endlessly repeat monetary policy cannot do everything, but they need to take off the rose tinted glasses given the immediate needs of investment in climate, technology, and defence.

Now is the time for President Lagarde to step up to the plate, and ensure the ECB fronts up and takes the leadership into a more active role. Recently, the Governor of the Banque de France, Francois Villeroy de Galhau, commented “that whilst price stability was the ECB’s primary objective, the bank must pay close attention to the risk of undershooting our inflation target”. He also made clear that the bank has responsibility outside of monetary policy such as defending open trade. Some heads of European corporates are beginning to point the finger at the ECB by criticising the ECB’s monetary policy and holding it responsible for the eurozone’s decline compared to the United States. 2025 should see President Lagarde come out with economic guns blazing, or we could see Europe descend from choppy waters to a financial maelstrom.

Sterling Slides as UK Government Bonds in Turmoil

Written by IntaCapital Swiss on January 15, 2025. Posted in News & Reports. Leave a Comment

In the second week of January 2025, we have seen the sterling fall, whilst the United Kingdom’s long-term borrowing costs have gone through the roof. This is a rare occurrence, and such a combination is a signal from the financial markets that investors have lost faith in today’s labour government and their ability to control inflation and to keep national debt in check. Traders have been dumping Gilts (UK government bonds/UK debt) and indeed, some experts are drawing comparisons with the Liz Truss min-budget (a bit of a nightmare) in 2022, or even the debt crisis back in the 1970’s when the then labour government had to ask the IMF (International Monetary Fund) for a bailout*.

*The 1976 debt crisis had the United Kingdom applying to the IMF for USD3.9 Billion after large trade and budget deficits plunged the nation into crisis. In return for the loan, the then Labour Government agreed to IMF imposed austerity programmes. Today, the United Kingdom is running twin deficits.

However, Chancellor of the Exchequer Rachel Reeves issue a statement on the evening of Wednesday 8^th January saying she has “an iron grip on the public finance”, which was a rare occurrence being the second statement on the same day. Strong words from the Chancellor, but on the following Thursday morning the interest rate/yield on the benchmark 10 year Gilts rose by 12 basis points to 4.921%, a figure not seen since 2008 which was during the Global Financial Crisis. The long-dated Gilt 30 years has also risen by 10 basis points to 5.474%, reflecting a 28 year high.

Usually a currency would be supported by higher yields, but on 9^th January 2025 the sterling sunk below USD1.23, having kicked off the new year above USD1.25: its lowest level since last November 2023. Some financial experts have espoused the theory that the government will have to revert to austerity in order to reassure financial markets while other experts have blamed the current crisis on lack of faith in the Chancellor’s promise to fund huge increases in spending with exceptionally quick growth. The backlash from the markets also follows weeks of bad data and economic news since labour’s general election victory in July 2024. Growth has stalled, GDP flatlined three months to September and business sentiment has soured on the back of the Chancellors increase in taxes.

Despite the chancellor’s reassurances of her “iron grip” the rise in gilt yields/interest rates now means the governments cost of borrowing has radically increased by GDP9 Billion, which has just about wiped out the GDP9.9 Billion spending buffer that the chancellor has built into tax rises. The fact that the Chancellor left the smallest of margin of buffers against her to pay for day-to-day spending out of taxes, her credibility is now at stake. Some analysts advise that “Trading Signals’ suggest that markets remain highly sensitive to any policy decision from the government (and the Bank of England), which leaves the Chancellor in a predicament as her Spring forecast will take place on Wednesday 26^th March 2025. She can only hope that the financial markets have regained some respect for her and the government by then.

The Euro Under Pressure in January 2025 Doldrums

Written by IntaCapital Swiss on January 6, 2025. Posted in News & Reports. Leave a Comment

c The Eurozone currency fell by 0.5% to USD1.0306, a decline of circa 8% since late September 2024. There are a number of factors that have dragged the Euro lower, and experts agree one factor is the eurozone’s export-leaning economies. which will suffer under tariffs as promised by the US President-elect Donald trump.

Other factors include economic and political uncertainties in Germany and France, whose economies underpin and are the driving force behind the European Union, plus monetary policy discrepancies between the ECB (European Central Bank) and the United States Federal Reserve. Furthermore, recent economic data coming out of France showed the sharpest decline in manufacturing activity since May 2020 whilst data from Germany showed output hitting a three month low.

The Euro’s slump has driven some analysts to predict that in 2025, the Euro will not only achieve parity with the US Dollar but may well fall below that figure. The last time this key threshold was passed was July 2022, after Russia’s illegal invasion of Ukraine in February of that year. Experts described 2022 as the worst year in the Euro’s history, with the Euro falling under parity In July but reached a year-to-date low on 27^th September 2022 falling to 1 Euro = USD 0.960.

On Thursday 2nd January 2025, the financial markets factored in further energy problems attributed to the eurozone compounding on-going woes for the Euro. Russian gas exports to Europe via Ukraine were halted on January 1^st, 2025, bringing to an end the five year transit agreement with neither side entering into new negotiations whilst the two countries are still at war. Central European countries will now have to find more expensive gas, just as depletion of winter storage is moving at its fastest pace in years.

A number of commentators have asked if the ECB will intervene to support the Euro, however financial markets are of the opinion that exchange rates are not on the ECB’s radar and therefore are not currently part of ECB policy. Interestingly, The ECB has only intervened to support the Euro a few times, the first was back in 2000 to support the Euro and the second was in 2011 as part of a coordinated effort by the G7* to weaken the Japanese Yen.

*G7 – Also known as the Group of Seven is an intergovernmental political and economic forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union has a seat at the table but as a non-enumerated member.

Elsewhere, data released showed hedge funds have held bearish positions on the Euro since the last week of September 2024. It further showed that on the last day of December 2024, circa 2.5 Billion in euro options wagers changed hands targeting parity and below, which was four times more than the previous month.

This year, analysts predict the ECB will cut interest rates by a full percentage point, whilst the Fed appears to be on a more hawkish stance of 50 basis points for 2025. Many experts agree the eurozone has a bleak economic forecast for 2025, with persistent economic and political instability, a Chinese economy that is slowing and implications of a Trump2 Presidency, all of which will negatively impact the Euro.

The Trump Effect on the Economy of the United States of America

Written by IntaCapital Swiss on January 6, 2025. Posted in News & Reports. Leave a Comment

On Monday 20^th January 2025 ex-President Donald Trump will once again become President of the United States of America and a new era of Trump economics will begin. There are many differing opinions on what may happen to the American economy, but one thing seems certain: tariffs on imports to the United States are back, with China seemingly getting the brunt of this policy. Many commentators are at odds with each other as to what may happen in the short, medium and the long-term of a Trump2 presidency, so what policies will really impact the economy of the United States?

Tariffs

Many analysts and economists have said that the tariffs threatened by Donald Trump (10 – 20% on all imports apart from China which is 60%) will have the biggest impact on the US economy. In his first term, the Trump administration placed taxes and duties on imports of circa USD380 Billion, and his second administration is expected to increase tariffs even more under the “America First” policy. What is also important is that, as was seen from his first administration, the President can enact tariffs all by himself without the approval of congress.*

*Tariff Approval – The approval of tariffs was once in the hands of congress who had the constitutional right and would require legislative action. However, many years ago, congress gave up its rights to set tariffs and today a range of laws now authorise the President when certain conditions are met to impose tariffs. Under the International Emergency Economic Powers Act of 1977, the President can invoke emergency powers to impose tariffs without having them approved by congress.

The President elect has already said that tariffs or import taxes will reduce the trade deficit of the United States, whilst at the same time raise revenue and re-shore manufacturing. Some experts predict that the President elect will implement tariffs with alacrity, however, analysts predict that as a result of import duties/tariffs, inflation will rise because the higher costs now being experienced by importers will be passed on to consumers. Janet Yellen, the United States Treasury Secretary in December 2024 has been quoted as saying that the President elect’s plans to levy broad import tariffs could derail progress in quelling inflation and raise costs for businesses and households. The Treasury Secretary went on to say that Donald Trump’s tariff plans of 60% on Chinese imports and 10% – 20% on imports from elsewhere would “raise prices significantly for American consumers and create cost pressures on companies”.

Such concerns have been dismissed by the President elect and his cohorts as downbeat projections from senior figures on Wall Street. They pointed out that until Covid-19 and the pandemic hit, the President in his first term presided over robust growth, this despite tariffs which also did not cause inflation to spike. Indeed, the CPA* (Coalition for a Prosperous America) estimated that with the promised income tax cuts combined with a universal tariff of 10% would create circa 2.8 million jobs and would add circa USD700 Billion to economic output.

*CPA – This is the only national non-profit organisation that exclusively represents domestic producers across the United States. They are a coalition of manufacturers, workers, farmers, and ranchers, and represent the interest of 4.1 million households. Their team includes decades of government experience in congress, the executive branch, and the private sector.

Deregulation

Historically, businesses favour deregulation and are more likely to invest under a political administration that favours such an option. Indeed, Donald Trump’s goal of removing ten regulatory rules for every new one issued will create, according to some experts, hyper deregulation, which will make a positive impact on economic growth. Analysts point to the 1990’s, where a comparative study between the United States and Europe showed that stricter regulation in Europe, and especially during a period of rapid technological information, resulted in the United States having faster growth than Europe. This particular study showed that tighter regulation deterred investment whilst a more liberal attitude towards regulation boosted investment.

The Trump2 administration will be able to reduce quickly and efficiently what is known as “Extra Regulatory Guidance” as it does not require approval from congress. However, the removal of whole government departments and agencies would take a serious amount of time and the newly formed DOGE (Department of Governmental Efficiency)is not expected to issue their recommendations until mid 2026. Experts suggest that the prospects of deregulation will more than likely encourage a “risk on” environment in the United States, which could be especially beneficial to cryptocurrencies and financial stocks.

Tax Cuts

Analysts suggest that a Trump2 administration will probably focus on his first administration’s TCJA (Tax cuts and Jobs Act) with a view to expanding and extending this act. The reason for extending the act is that if it was allowed to expire it may well encourage a fiscal drag on US growth, so it is assumed this will have a positive impact on the economy. Corporate profits are also on the Trump2 radar with plans to cut the top rate of tax from 21% to 15%. Experts have suggested that this will be more difficult to achieve because of the current federal deficit, the pressure to raise spending on defence and other areas plus the effect extending the TCJA, which has a direct effect on voting households’ budgets.

However, economists warn that what impact that tax cuts will have on the federal deficit as the original TCJA was not fully funded (the loss of tax revenue was not offset by other tax revenues or spending cuts). Team Trump2 however, argue that deregulation and lower taxes will eventually pay for the tax cuts (albeit indirectly) as they will ignite investment, productivity, and economic growth.

Immigration

It appears that President elect Donald Trump has two planks to his immigration policy, 1. Deporting undocumented individuals already residing in the United States and 2. Basically closing and securing the southern border of the United States.

The incoming administration has threatened to deport between 15 and 20 million people within the United States who have no proper documentation. Experts in this area report that near-term actions will focus on the circa 1.4 million individuals that have been ordered by the courts to leave the United States. There are also a backlog of court cases accounting for circa 3.7 million individuals which will be which the new administration will hope to pass through the courts as quickly as possible.

Many commentators agree that mass deportations could have a negative effect on the economy and inflation, with adverse effects on the service sector (experiencing acute labour shortages) and the agriculture sector where an increase in pricing could be the result of deportations. Doomsdayers suggest that such a policy could lead to stagflation, higher inflation and even a recession with a slowdown in the economy and higher wage costs. However, such speculation is dismissed by the incoming administration who feel by putting America First will allow the USA to be economically and socially on the up.

During the Trump1 administration, securing and closing the border between Mexico and the United States was not completed, and in the Trump2 administration the President elect will be leaning on the President of Mexico to help stop illegal crossings into America. President elect Trump has already made his feelings and intentions towards Mexico exceptionally clear. Indeed, on the very last day of campaigning the then ex-President Trump advised his supporters that the Mexican President would be the receiver of one of his first telephone calls. He said he would advise President Claudia Sheinbaum that if she did not stop the onslaught of drugs, criminals and other illegals coming into the United States, he would impose an immediate tariff of 25% on everything coming out of Mexico bound for the USA. However, a number of economists have advised that closing the border will have little impact on the economy of the United States.

Final thoughts

It is difficult to predict the future, but one thing is certain: President elect Donald Trump, with his “America First” policies, will use tariffs as a weapon to try and get his own way. Furthermore, experts suggest his policies will have a dramatic effect on the regulatory and economic landscape of the United States. Elsewhere, sustainable investment (not on the list of Trump2 priorities) emerging markets and other sectors will all feel the effect of the new administration’s policies, with broader implications for environmental risks, new challenges to global trade dynamics and increased market volatility.

Author: IntaCapital Swiss