Megatrends: why you are better off investing in trends than tweets
What are megatrends? How do they transcend the tumult of the day? And why is it interesting as an investor to have these trends with you? Mark Van Assche, account manager Private Banking and Wealth Office talks about them with Romain Dédericks, fund manager at KBC Asset Management.
3/09/2025
Economy
- Weakening job growth and shrinking savings surpluses, along with inflation remaining high due to higher import tariffs, are weighing on US consumers' purchasing power. Our economists do not anticipate a recession, and in fact have slightly upgraded their growth forecasts for 2025 and 2026 - though the rate of growth is admittedly slightly lower than in recent years. Overall, therefore, we are still looking at a slowdown in growth.
- Our economists still believe economic growth in Europe will be low.
Commodity prices - inflation
- With energy prices under control and declining wage growth, inflation rates are continuing to fall almost everywhere. Inflation in the euro area is already within the central banks' 'comfort zone'. In the US, however, core inflation remains somewhat higher and the rising import duties are having a noticeable effect on output prices.
- With a number of key trade agreements in place, the new average import tariff is estimated at 16-17% (compared to 2.5% before Trump II). These levies are expected to gradually trickle down into retail prices in the coming months, keeping inflation above the Federal Reserve's target for several more months.
Fiscal and monetary policy
- The 'Big Beautiful Bill', which mainly extends the expiring tax cuts from Trump's previous tenure, is expected to provide a limited boost to growth. However, there will be little change in the high budget deficit, which will further derail US public finances in the coming years. China continues to regularly support its flagging economy with new policy measures. In the euro area, the major investments announced for defence and infrastructure are gradually taking more concrete shape, although it looks as if their impact won’t be felt fully until 2026-27.
- The European Central Bank kept its deposit rate unchanged at 2% in July, with further movements dependent on economic data. Our economists do not expect the Bank to cut interest rates further next year. The US central bank (Fed) cited weak the labour market data as a reason for cutting interest rates again (by 25 basis points). Following yesterday’s cut, our economists now think the Fed will cut interest rates five more times before the end of 2026 . Fed chairman Jerome Powell himself, however, hinted yesterday that this was now unlikely.
Bond markets
- Despite weaker growth, falling inflation and lower key rates, bond yields remain at somewhat higher levels in both the US and Europe.
- The fiscal about-turn by the new German government, lifting the ‘debt brake’ and allocating a generous budget to relaunch policy and defence spending, explains the higher yields in Europe.
- The -once again- volatile political situation in France caused interest rates to rise a little further.
- In recent weeks, interest rates have normalised and stabilised somewhat.
Stock markets
- Stock markets have climbed again to new historic highs in recent weeks, with the gains being consolidated. Sentiment was helped by the lack of a serious escalation in the trade war and the promise of cuts in interest rates. Corporate earnings have also supported the rally we have seen since the dip following Liberation Day.
- The US in particular has staged a strong rally, thanks to better-than-expected corporate earnings, supported by a strong performance by large Tech companies and financial firms.
Risks
- The conflicts in the Middle East and Ukraine have remained somewhat on the back burner on the financial markets in recent weeks, but there is nothing to exclude them flaring up again.
- In addition, the tense political situation in France is creating some extra turmoil.
As expected, the Fed cut interest rates again, while the labour market is showing signs of weakness. We are making some changes within the share sectors and bond themes, and slightly increasing the hedging of the dollar risk.
Siegfried top, Senior Investment Strategist KBC Asset Management
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