Cross Asset Investment Strategy - December 2024

• The German economy has been lagging behind other Eurozone countries due to structural changes in its economic model and global trade. A huge investment effort would be needed to relaunch it. Economists recommend making up the lost ground within ten years by making massive infrastructure investments.
   

• A head of February’s election, many parties are proposing to reform the debt brake rule. While a major fiscal stimulus plan should not be anticipated next year, even modest reforms could influence positively investor sentiment, particularly if paired with a new off-budget fund for defence spending.
   

• The Constitutional Court ruling of November 2023 does not rule out the possibility of new off budget funds in Germany. While the court emphasised that special funds must serve their intended purpose, the successful €100bn defence fund established after the invasion of Ukraine implies that similar initiatives could be pursued to address pressing needs.

• Macroeconomic focus: views on ECB
• Main and alternative scenarios

After Trump victory, all eyes on inflation

A resilient US economy, the anticipation and eventual victory of Donald Trump and his recent appointments along with risks around inflation have been driving nominal and real yields over the past months. But US equities and the dollar rose amid a belief that the US economy would benefit from Trump’s policies at the expense of the rest of the world, i.e., Europe and some Asian countries. While we agree that US policies would reverberate across European assets and emerging markets, the actual impact depends on specific measures and countermeasures. We think the following factors will be major market drivers.