Barclays_Global_Macro_Thoughts_And_so_it_begins_13页_666kb

Summary of Global Macro Thoughts

Core Content

This document provides an analysis of current global macroeconomic trends and market implications, focusing on U.S. and European economic developments, trade policies, and their impact on financial markets.

Main Points

1. U.S. Tariffs: A Major Economic Shock

• Tariff Impact: The current round of U.S. tariffs on Canada and Mexico is significantly more disruptive than the 2018 tariffs on China.

  • The 2018 tariffs affected China's trade surplus, but the current tariffs are broader, targeting goods worth nearly $1.4 trillion.
  • These tariffs are set to take effect immediately, unlike the 2018 tariffs which were phased over two years.
  • The U.S. and Canada/Mexico have strong manufacturing linkages, especially in the automotive sector, which makes the tariffs particularly damaging.

• Economic Consequences:

  • The tariffs are expected to push up U.S. inflation by 35–40 basis points and reduce U.S. GDP by 25–50 basis points.
  • Mexico and Canada have announced reciprocal tariffs, and the U.S. has threatened to increase tariffs further if retaliation occurs.
  • The auto and housing industries are lobbying for exemptions, but large-scale exceptions are unlikely.

• Market Reaction:

  • Markets were not fully prepared for the scale of these tariffs, leading to limited initial reactions.
  • Some investors still expect a deal before the tariffs are implemented.
  • The report advises a shift to Underweight on risk assets due to the potential negative impact.

2. Fed Signals Prolonged Pause, ECB Still Has Work to Do

• U.S. Economic Data:

  • U.S. GDP growth in Q4 was 2.3% q/q SAAR, slightly below consensus, due to volatile inventories.
  • Private domestic final purchases (PDFP) rose by 3.2% q/q SAAR, indicating strong underlying momentum.
  • Inflation remained in line with expectations, with core PCE and ECI prints showing stability.

• Fed Policy Outlook:

  • The Federal Reserve signaled a prolonged pause in rate cuts, emphasizing that they would wait for further inflation progress and labor market weakness.
  • Fed Chair Powell did not comment on President Trump's call for lower rates.
  • The report expects Treasury to increase coupon sizes by November 2025 and to forecast private borrowing needs of $800 billion in Q1.

• Euro Area Performance:

  • Euro area growth in Q4 was flat at 0.0%, with Germany contracting at -0.2% and Spain as the only major growth engine.
  • The ECB cut rates as expected, with further cuts likely. The deposit rate is expected to end at 1.5%.
  • The Bank of England is expected to cut rates by 25 basis points to 4.5%.

3. Market Sensitivity to Inflation Outlook

• Interest Rate Expectations:
  • Markets are pricing in a 25% probability of a Fed rate hike.
  • The evolution of this probability shows heightened sensitivity to inflation data.

4. Equity Market Resilience

• Market Performance:

  • Equity markets, including U.S. Big Tech, showed resilience despite the DeepSeek news.
  • NVIDIA dropped over 15%, but the S&P 500 and Nasdaq only declined by 1–1.5%.
  • China’s markets were slightly stronger.

• Investor Sentiment:

  • Markets have been in a state of denial regarding the impact of these tariffs, as they were not expected to be this severe.
  • The report suggests a shift in market sentiment towards risk assets, with a focus on USD strength, energy, and auto sectors.

5. Investment Recommendations

• Bond Market Outlook:
  • The expected hit to growth will offset the higher inflation path through the goods channel.
  • The report recommends a neutral duration stance in bonds.

Key Information

• The tariffs on Canada and Mexico are a significant escalation in U.S. trade policy, with potential broader economic implications.
• The Fed is signaling a prolonged pause in rate cuts, while the ECB and BoE are expected to continue easing monetary policy.
• Equity markets have shown resilience, but the report advises caution due to the potential negative impact of the tariffs.
• The report highlights the need for investors to be wary of the inflationary pressures and growth risks posed by the new tariffs.
• The document includes detailed disclosures about potential conflicts of interest, as Barclays may trade the securities discussed in the report.
• The report is intended for institutional investors and is not subject to the same independence and disclosure standards as reports for retail investors.

Selected Research References

• Global Economics Weekly: DeepSeek, Fedspeak, tariff week (1 February 2025)
• Global Rates Weekly: Wait and see (30 January 2025)
• US tariff policy: Don't believe the hype; it's a sequel (26 November 2024)
• Global Outlook: room for optimism (13 November 2024)
• January FOMC: All we need is just a little patience (29 January 2025)
• ECB Watching: Dovish overtures (30 January 2025)

Analyst Certification

• Ajay Rajadhyaksha and Max Kitson certify that the views expressed in the report reflect their personal opinions and that no part of their compensation was tied to the recommendations in the report.

Important Disclosures

• The report is produced by Barclays Research and is intended for institutional investors.
• It contains investment recommendations and market analysis but does not constitute investment advice.
• There may be conflicts of interest due to Barclays’ trading activities.
• The report includes pricing data sourced from LSEG Data & Analytics and is not guaranteed to be accurate or complete.
• The views expressed are those of the analysts and may change without notice.

Legal and Distribution Notes

• The document is distributed by authorized legal entities of Barclays and is not intended for retail investors.
• It may be distributed by non-affiliated third-party distributors such as Barrenjoey Markets Pty Limited.
• The report is subject to various legal restrictions and is not a financial benchmark or investment advice.
• The document includes disclaimers regarding the accuracy of information and the liability of Barclays.