Global Investors Prepare for Trump’s Return

(Reuters) – Global investors are about to get a taste of what Donald Trump’s return to the White House might mean for markets, global trade, and international relations.

Trump’s inauguration on Jan. 20 as the 47th U.S. president will likely bring with it a Day One-barrage of executive orders on anything from taxes to tariffs, just as the fourth-quarter earnings season gets underway in earnest.

What Matters for Markets

Here’s a look at what’s going to matter for markets in the coming week from Rae Wee in Singapore, Lewis Krauskopf in New York, Alun John, Karin Strohecker, and Amanda Cooper in London.

1. WELCOME BACK, MR. TRUMP

Investors everywhere are waiting for Trump to begin his second term as U.S. president on Monday. He has pledged to sign a flurry of executive orders on his first day in office, and some speculate he could begin right after his inauguration, before even the ceremonial parade.

U.S. markets are closed Monday for Martin Luther King Jr. Day, so it may not be until Tuesday that investors can fully react. Any early moves on tariffs will be a particular focus, after the leaks, counterleaks, and denials that have already riled currencies and shares in big global manufacturers.

Long-dated bond yields have risen ahead of Trump’s inauguration, as traders expect his proposed tax cuts and tariffs to be inflationary and to stimulate domestic growth. However, as the U.S. debt-to-GDP ratio is pushing 100%, former policymakers are wondering whether bond vigilantes are lying in wait.

2. QUARTERLY CHECKUP

Investors counting on a solid 2025 for U.S. corporate profits to boost stocks will get a fuller picture of the outlook in the coming week. A wide swathe of Corporate America is set to post results for the last quarter of 2024 and give a view into the year ahead. The coming week includes earnings from streaming firm Netflix, healthcare giant Johnson & Johnson, consumer products maker Procter & Gamble, and credit card company American Express. Major banks kicked off quarterly earnings season on Jan. 15, with profits at some of the biggest U.S. lenders rising, as deal-making picked up and trading was boosted by strong equity markets. Overall, S&P 500 companies are expected to post an increase of 10.4% in the fourth-quarter earnings from the same period the previous year, according to LSEG IBES data as of Jan. 15.

3. WAR & PEACE (AND DAVOS)

Trump is expected to continue to shape momentum in wars raging in Ukraine and the Middle East. The Israel-Hamas ceasefire to end the deadly 15-month-old Gaza conflict is still expected to start on Sunday, though loose ends are still being ironed out. Hopes for stabilization have lifted the region’s bonds and stocks, and could shape oil markets.

Bringing peace to Ukraine, which is nearing its third year of war, might take longer than the ‘Day One’ fix Trump pledged, but markets are gearing up for how this will reshape the region. Trump is set to virtually address leaders and CEOs, including Ukraine President Volodymyr Zelenskiy and Israeli officials, who are scheduled to gather in Davos from Monday. A pre-summit survey has identified war as the main risk of 2025.

4. ENERGY BOOST

European policymakers are getting exactly what they don’t want right now – higher borrowing costs and soaring energy prices. Oil has risen by 10% this month alone, spurred by concern about the impact of more Western sanctions on Russian crude, while natural gas prices have surged in the middle of winter.

More worryingly for Europe, the euro has hit 14-month lows against the dollar, just above the $1.0 mark. Since Russia’s invasion of Ukraine in February 2022, the U.S. has become Europe’s biggest supplier of liquefied natural gas (LNG) and a significant source of crude oil, meaning the weakness in the currency poses a double headache. The upcoming December final inflation numbers for the eurozone are unlikely to account for these price increases, suggesting a possible nasty surprise later on.

5. WILL THEY, WON’T THEY?

The Bank of Japan (BOJ) heads into its first policy meeting of the year. The yen is languishing near six-month lows, yet a rate hike could be a panacea for the currency’s pain against a towering dollar, albeit temporarily. It seems policymakers at the central bank are priming markets for such a move, as both Governor Kazuo Ueda and his colleague Ryozo Himino indicated the decision would be for debate at the BOJ’s Jan. 23-24 policy meeting.

The timing is crucial, as Trump’s inauguration occurs just days prior, giving the BOJ time to consider how his policies could ripple through financial markets. Traders have reacted to BOJ officials’ remarks by increasing their bets on a January rate hike, with futures now indicating a 70% chance of a 25-basis-point increase.