Economy

UBS analysts categorize the progression into distinct stages that are likely to unfold throughout 2025, starting with what they term the “tweet phase,” escalating to the “imposition phase,” and eventually transitioning into the “impact phase.”The “tweet phase,” according to UBS, is already underway, characterized by public declarations and demands through social media. These early-stage announcements often serve to define negotiating positions and apply pressure on trade partners even before official actions are undertaken.The “imposition phase” is expected to commence in the first quarter of 2025. During this stage, legal groundwork will be laid for imposing tariffs, requiring procedural steps, public commentary, and time for drafting measures that can withstand legal scrutiny. UBS anticipates that while some preparatory work may already be underway, the timeline for this phase will depend on administrative priorities and the need for meticulous implementation.Following the imposition, the “impact phase” is projected to begin from the second quarter onward. UBS notes that businesses, aware of the risks, are likely to engage in stockpiling and inventory management to mitigate short-term disruptions. However, the broader economic effects, such as reduced trade volumes and slowed growth, could manifest even before corporate earnings reflect the full brunt of tariff-related costs.A parallel “negotiation phase” is expected to persist throughout the year. UBS highlights the likelihood of ongoing talks between trade partners aimed at either defusing tensions or responding with retaliatory measures. For instance, recent moves by China to restrict exports of critical metals in response to U.S. actions underline how trade policies may remain highly transactional and subject to abrupt shifts.Despite the uncertainty, UBS analysts also emphasize that the response from global markets and trade partners could significantly shape the trajectory of this conflict. They cite President-elect Donald Trump’s threats to impose 100% tariffs on BRICS countries unless specific conditions are met, a move they deem unlikely to materialize but indicative of the heightened rhetoric surrounding trade policy.In addition to the timeline, UBS provides insight into the potential economic implications of new tariffs. Emerging market currencies, particularly the Chinese yuan, are expected to experience increased volatility and pressure as a result of reduced trade volumes and investor risk aversion. The yuan could face additional stress, similar to patterns observed during prior trade tensions, though interventions by China’s central bank are likely to provide some level of stabilization.The note also examines how these dynamics intersect with broader economic policies, including the Federal Reserve’s rate-cutting strategy and the impact on the U.S. Treasury yields. UBS warns that more extensive tariffs could risk stagflation—a toxic mix of high inflation and low growth—though their baseline scenario suggests moderate inflationary effects. More

BCA expects the U.S. Congress to pass tax cuts by the end of 2025, contributing a fiscal thrust of approximately 0.9% of GDP in 2026. This move aims to stimulate the domestic economy but will coincide with President Trump initiating a global trade war. Central to this conflict will be tariffs targeting major trade partners, with China bearing the brunt of these measures.”Trump claims that higher taxes on imports will cover the difference,” BCA notes, but it highlights that such tariffs could have unintended consequences.Higher import taxes may lead to a 2.9%-6.3% decline in household incomes, offsetting the benefits of tax cuts. Furthermore, the uncertainty created by these trade policies could weigh heavily on business investment, particularly in sectors reliant on global supply chains.The report underscores that tariffs are unlikely to fully fund the ambitious tax overhaul. Instead, BCA anticipates increased fiscal deficits and heightened pressure on domestic consumers and businesses.In response to U.S. tariffs, China is expected to counter with significant domestic stimulus measures while strengthening its trade ties outside the U.S. According to BCA, “Xi Jinping will be able to blame Trump for the painful consequences of restructuring at home,” using external pressures to justify economic reforms and solidify domestic support.Beijing’s strategy will likely include targeted fiscal easing and efforts to reduce reliance on American demand. While these measures are expected to provide short-term relief, BCA suggests that China will hold back on deploying its “fiscal bazooka,” reserving significant stimulus for a potential global recession. Instead, China will focus on long-term strategies, such as expanding trade with non-U.S. partners and bolstering its manufacturing sector.Simultaneously, the report highlights an uptick in China’s military and strategic activities, including potential conflicts in East Asia and increased pressure on Taiwan. These moves are part of a broader strategy to assert geopolitical influence amid heightened global tensions.“Investors cannot predict random military incidents or base their portfolios on them – but they can set up early warning systems to detect if a negative trend starts to develop,” BCA notes.Lastly, while the Ukraine war is expected to peak and move toward a ceasefire in 2025, BCA anticipates that geopolitical risks will shift to the Middle East, particularly the escalating conflict between Israel and Iran. The report estimates a 75% likelihood of military escalation, driven by Iran’s nuclear ambitions and the fallout from U.S. sanctions.BCA points to a deteriorating security landscape in the region, with Iran likely to leverage its proxy networks and air defense systems to deter attacks. However, Israel, seeing a rare strategic opportunity, may act decisively to set back Iran’s nuclear program. “The Israeli Defense Forces may never get a better chance,” the report states.Trump’s return to office could further inflame tensions. His administration’s enforcement of “maximum pressure” sanctions and potential realignment of U.S. foreign policy are expected to exacerbate volatility in the region. More

China said this week it will raise the budget deficit, issue more debt and loosen monetary policy to maintain a stable economic growth rate.The People’s Bank of China has steadily reduced interest rates and injected liquidity this year as the authorities have made efforts to hit a official economic growth target of around 5%.Interest rates should be strengthened to facilitate transmission and guide the comprehensive social financing costs to a steady decline, PBOC research bureau director Wang Xin said in remarks about specific considerations for China’s next phase of monetary policy implementation.”As the PBOC’s exploration of buying and selling government bonds in the secondary market becomes more mature, the central bank should in the future use a variety of monetary policy tools to provide sufficient medium and long-term liquidity and maintain adequate liquidity in the banking system,” Wang said at an economic conference.(This story has been refiled to say cut, not cuts, in the headline and to remove extraneous words in paragraph 1) More

Analysts at Wells Fargo (NYSE:WFC) emphasize that while developed nations like the United States continue to consume substantial energy resources, the real momentum in energy demand growth is firmly rooted in emerging markets.In recent years, nearly all the incremental increases in global petroleum demand have originated from these economies. For example, in 2023, emerging markets accounted for 94% of the growth in daily petroleum consumption, illustrating their outsized contribution to the global energy landscape. Countries like China and India lead this surge. China has been a consistent force in energy consumption, while India has nearly doubled its energy use over the past 15 years.Despite this rapid growth, emerging economies still lag behind developed nations in per capita energy consumption. This gap signifies not only their potential for continued growth but also the possibility of sustained demand over the coming decades as they strive to match the consumption patterns of high-income countries. Such trends show the structural shift in global energy demand, where emerging markets are not merely catching up but are reshaping the contours of energy consumption.Wells Fargo analysts note that this trajectory is unlikely to wane soon, as millions in these economies seek to elevate their living standards, which correlates directly with higher energy usage. This steady rise underscores the long-term prospects for energy producers and markets to focus on these burgeoning economies as the primary hubs of future demand.As emerging markets continue to drive this transformation, the global energy sector must adapt to meet their specific needs and consumption patterns. This shift has far-reaching implications for energy investments, infrastructure development, and geopolitical dynamics, ensuring that emerging economies will remain central to discussions about energy demand and sustainability for decades to come. More

At the same time, 3.24 million housing units have been delivered in China, significantly improving market expectations, according to Dong.China’s local governments began compiling a “whitelist” of housing projects for loans earlier this year, giving troubled developers a lifeline to obtain funding for a sector that has beset the economy with stuttering growth.($1 = 7.2756 Chinese yuan) More

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“What’s bugging me is that everyone is saying the same thing,” says FT markets columnist Katie Martin, wearied by the slew of 2025 outlook reports published by banks and investment houses in recent weeks. “And essentially it’s ‘American exceptionalism’,” — broadly, that despite Trump’s policies on international trade, tax and migration being inflationary, arguably even fiscally reckless, and despite US stocks being very highly priced, analysts still think the market is the only show in town when it comes to investment.“Personally, I find that a little bit worrying,” she says. “Because it opens up the possibility that if something goes wrong with this narrative then everyone runs to the other side of the ship all at the same time.”In a conference room perched at the top of the FT’s London headquarters, in the shadow of St Paul’s and over a sandwich lunch, the Money section held its annual investment roundtable this week. As usual, there was one item on the agenda: what do retail investors need to look out for next year? In answering that question, we discussed Trump’s tariffs; bubbly US stocks; the future of UK equities; and whether, in the week after bitcoin topped $100,000, we could say anything sensible about crypto — all presented here with the usual caveat that this should not be considered financial advice.Joining Martin on the panel were Alix Stewart, a fund manager on Schroders global unconstrained fixed income team; Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International; and FT Money columnists Simon Edelsten, also the chair of the investment committee at Goshawk Asset Management, and Stuart Kirk. Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International More