CMSC2025 Overseas Macro and Major Asset Outlook: Seeking Beyond Expectations

CMSC released a research report stating that the process of overseas factory construction is nearing completion, and the current overseas capital expenditure cycle is transitioning towards production, which may boost demand in the early phase of production, but risks of excess capacity will also increase. From the end of 2023 to Q2 of 2024, the global economy will be in a phase of actively restocking inventory, with overseas countries entering a phase of passive restocking in Q3 of 2024. Currently, there is a transition from actively destocking to likely extending throughout 2025. In terms of liquidity, there is a higher probability of the US Federal Reserve pausing rate cuts in Q1 and possibly H1 of next year. If there is a deterioration in employment data or risks similar to the significant correction in the US stock market in Q4 of 2018, then the Federal Reserve may resume rate cuts. Overall, the Fed may cut rates by approximately 50 basis points throughout the year, but it is likely to focus more in the second half of the year, gradually phasing out balance sheet reduction next year. In terms of overseas assets, US stocks are nearing a peak stage, and during the process of reaching a bubble, there may be considerable room for self-realization in US stocks. At the current point in time, the upward trend of US stocks may not have ended yet. In the beginning of next year, the intensive issuance of executive orders by Trump to relax regulations on families and businesses may counter the negative impact of immigration policies and push US stocks into another Risk-on phase, with increasing downside risks to follow. The fluctuation range of the 10-year US Treasury bonds is expected to be between 3% and 5% in 2025. Additionally, after this round of elections, the unified control of both houses of Congress may temporarily weaken the relative advantage of gold, and the international gold price trend in 2025 may resemble the consolidating phase from the second half of 2020 to October 2022. Key points from CMSC: Overseas Economy: The best phase is over. The overlapping downward pressure on demand from overseas capital expenditure and inventory cycles. From 2021 to 2023, the global economy embarked on a capital expenditure cycle driven by the reindustrialization of Europe and the US, industrial upgrades (related to artificial intelligence and pharmaceutical industries), and "restructuring of the value chain." Currently, the process of overseas factory construction is nearing completion, and the current overseas capital expenditure cycle is transitioning towards production, which may boost demand in the early phase of production, but risks of excess capacity will also increase. From the end of 2023 to Q2 of 2024, the global economy will be in a phase of actively restocking inventory, with overseas countries entering a phase of passive restocking in Q3 of 2024, currently transitioning from actively destocking, likely extending throughout 2025. Moreover, in 2025, it is highly likely that Trump's policy of "breaking before building" will lead to a reduction in fiscal policy, exacerbating the suppression of overseas demand. The impact of the epidemic on post-epidemic US employment has had at least three positive effects, which seem to continue to this day: First, (more significantly than other countries) slowing down the aging process, optimizing the age structure of the workforce, and thereby boosting labor productivity. Second, reducing the unemployment rate in the US, stabilizing the job market, and prolonging the stable period of the job market. Third, the epidemic indirectly led to changes in US immigration and industrial policies. On the one hand, the epidemic suppressed immigration, leading to a widening labor shortage; on the other hand, the reshoring of manufacturing and AI development helped fill the employment gap caused by the epidemic. Therefore, there is a persistent supply-demand gap in the post-epidemic US job market, which enhances the US economy and stock market. However, these three post-epidemic "dividends" may taper off overall in 2025. First, the impact of the epidemic on optimizing the US population structure may have largely disappeared. Second, with the US adopting a policy of breaking before building, 2025 will be a year of fiscal reduction. Following the midterm elections and the desire to maintain or expand the Republican advantage in both houses of Congress, the Trump administration in 2025 will focus on cost-saving policies and delay the release of more policy dividends until 2026. Third, considering the Fed's rate-cut brake in 2025 and fiscal reduction, the marginal wealth effect propelled by US stocks may be difficult to sustain. It is estimated that the actual GDP growth rate in the US will decline to 1.9% in 2025, with a front-high-back-low rhythm; the CPI growth rate in 2025 is expected to be 2.9%, with a front-low-back-high rhythm. Overseas Liquidity: Broad money continues, but broad credit is harder to come by. US Federal Reserve: Liquidity environment is expected to improve in H2 of 2025. With factors such as stable economic and asset prices, risks of upward inflation, etc., there is a higher probability of the Fed pausing rate cuts in Q1 and possibly H1 of next year. If there is a deterioration in employment data or risks similar to the significant correction in the US stock market in Q4 of 2018, the Fed may resume rate cuts. Overall, it is expected that the Fed will cut rates by around 50 basis points throughout the year, but it is likely to focus more in the second half of the year, gradually phasing out balance sheet reduction next year. However, with fiscal reduction and downward trends in corporate capital expenditures, broad credit is unlikely to be available in the short term. European Central Bank: More room for broad money in H1 of 2025. Currently, there is still over 100 basis points of space between policy rates and neutral rates in the eurozone. Inflation pressures in the euro area are significantly lower than in the US, and high rates hamper the economy and increase fiscal pressure. From both necessity and feasibility perspectives, the ECB has stronger motivation for rate cuts than the Fed, and more rate cuts are expected in the first half of 2025. Bank of Japan: May raise interest rates after the "Spring Struggle" in March. Considering the gradual clarity of the Trump administration's policy path after late January 2025 and the "Spring Struggle" in March, and with recent downward revisions to Japanese consumption data, there is a high probability of a pause in rate hikes in January, with a high probability of deciding on the timing of policy adjustments after March. In addition, there is market concern that the BOJ's monetary policy cycle may reverse in tandem with those of the US and Europe, potentially leading to risks of carry trade reversals in the first half of the year, which may be relatively controllable in the background of the Fed pausing rate cuts. Overseas Assets: The logic of the see-saw between stocks and bonds in 2025 may switch. US Stocks: There is a higher probability of a decline in 2025, but the pace is unpredictable. Currently, US stocks are nearing a peak stage, and during the process of reaching a bubble, there may be considerable room for self-realization in US stocks. At the current point in time, the upward trend of US stocks may not have ended yet. In the beginning of next year, the intensive issuance of executive orders by Trump to relax regulations on families and businesses may counter the negative impact of immigration policies and push US stocks into another Risk-on phase, with increasing downside risks to follow. Based on the political cycle of US stocks, combined with the Fed's rate-cut brake and fiscal reduction, there is a high probability of the S&P 500 index closing down for the whole year of 2025. 10-Year US Treasury Bonds: The fluctuation range may be between 3% and 5% in 2025. It is expected that in the first half of the year, under expectations of increased tariffs and deportation of illegal immigrants, the yield on 10-year US Treasury bonds may experience a fluctuation.Challenge 5% again; In the second half of the year, with the impact of economic slowdown and the decline of the US stock market, expectations of interest rate cuts have been reignited, and the yield of 10-year US Treasury bonds may fall to the 3.5% -4.0% range. If there is a hard landing expectation caused by significant layoffs in 2025, or risk-off caused by a sharp drop in the US stock market, the yield of the 10-year US Treasury bonds may also be significantly lower than 3.5%.Exchange Rate: Whether the end of the conflict between Russia and Ukraine is crucial for the turning point. If the conflict between Russia and Ukraine comes to an end, there may be a one-off revaluation of the euro. As the euro accounts for as much as 57.6% in the US dollar index, the US dollar index is expected to fall from its high position, and the depreciation pressure on the Chinese yuan will further ease. However, before the conflict between Russia and Ukraine comes to an end, the US Federal Reserve has paused interest rate cuts, while non-US central banks are still in an interest rate reduction cycle, so the US dollar index may still fluctuate at high levels. Gold: High-level fluctuations are the most likely scenario. After this round of elections, the unified stance of both houses may temporarily weaken the relative advantage of gold. However, as long as the global credit system remains torn, gold will not undergo significant adjustments, and the international gold price trend in 2025 may be closer to the 2020H2-2022 October stage of fluctuation and stabilization. Risk Warning Global economic performance exceeds expectations; global policy changes exceed expectations; geopolitical risks exceed expectations.