The year starts with important US data confirming our Goldilocks outlook—steady growth and contained inflation—alongside fresh concerns over the Fed’s independence.
Let’s dive first into the macro picture. US activity was strong in the third quarter and remained resilient in the fourth, despite the government shutdown. December stood out with solid ISM services. It hit its highest level since October 2024, and all components improved, clear signs that services will stay a solid driver of US growth. A few companies mentioned tariff-related cost pressures, but this is now normalizing, showing the economy is adapting to tariffs.
Companies have navigated tariffs effectively. In the first half of the year, they absorbed the impact by cutting labor costs and lowering their margins. By the second half, however, they were able to pass tariffs through higher prices. This is evidence of solid pricing power and resilient consumer demand.
On the labor front, December’s employment report offered the first clean read since the shutdown and pointed to continued strength. Unemployment edged lower, and private‑sector job creation held near breakeven, indicating that downside risks have diminished.
Together, these developments reinforce our outlook for resilient US growth, supported by fiscal, monetary, and regulatory easing.
So What does this mean for investments? This backdrop is positive for equities, that will be supported by strong earnings growth in 2026. We stay invested and keep our overweight in the US technology sector and European industrials, which should benefit from German fiscal stimulus.
Inflation surprised to the downside in December, largely due to shutdown‑related distortions: much of the price collection took place during Black Friday promotions, and some data was not recorded. These effects should unwind in the December CPI and in April when the housing sample rotates.
The Fed is likely to look through these temporary distortions and wait for clearer evidence that inflation has peaked before resuming rate cuts.
Meanwhile, pressure on the Fed is mounting. The Justice Department opened a criminal investigation into Chair Powell over testimony on building renovations. Powell called it a “pretext” to push for lower rates. In this environment and given risks over Fed’s independence, investors will continue to demand a high term premium in the US. So we continue to favor shorter maturities in US sovereign bonds.
Finally, we maintain a strong overweight in gold across our portfolios. Geopolitical tensions continue to rise, with recent US military activity in Venezuela and renewed strategic interest in Greenland and Cuba. Sanctions risks also remain elevated. These developments are likely to accelerate gold purchases by EM central banks seeking to diversify reserves away from the dollar. Given that gold still accounts for a much smaller share of EM FX reserves than in developed markets, this buying trend should persist, providing durable long‑term support for the asset.
