Trump's fiscal agenda to stir market volatility until 2026
Donald Trump plans to implement a series of initiatives after taking office as president, which could significantly impact the volatility of financial markets. Key areas include tax policy, deregulation, and fiscal policy. However, according to analysts at Saxo Bank, the full effects of these actions might not be visible until the financial year 2026.
As John J. Hardy, the chief macro strategist at Saxo, states in his report, global markets will operate reactively through the first quarter of 2025 until the outcomes and effects of the new administration's decisions are known. Hardy points out that many key initiatives in the Trump 2.0 scenario, ranging from tax issues and deregulation to fiscal policy, are unlikely to fully materialise until the financial year 2026.
Saxo's experts note that markets will be intensely trying to anticipate future events, likely leading to significant trading volatility. Analysts emphasise that the world will seek stabilisation in the context of more decisive U.S. policies, which elicit varied domestic and international reactions.
Challenges for the American economy
According to the Saxo report, "markets initially reacted unequivocally positively to Trump's decisive victory and the Republicans' takeover of Congress, similar to the 2016 elections." Analysts indicate that the U.S. dollar strengthened, U.S. Treasury yields surged, and U.S. stocks broadly gained value.
As Hardy emphasises, Trump's agenda involves reindustrialising the United States to restore jobs in the industrial sector and improve national security. At the same time, the goal is to reduce the country's massive trade and budget deficits, manage the growing debt trajectory, and maintain low inflation.
Global implications
The document's authors point out that U.S. Treasury yields rose across the yield curve ahead of Trump's inauguration. Analysts explain that the market generally assesses that the new president's policies will yield a mix of sustained inflation, still very high budget deficits, and solid economic growth.
Experts believe the possibilities for U.S.-China relations under the presidencies of Trump and Xi Jinping are incredibly diverse. Analysts predict that Trump will begin with selected tariffs and announce further ones but will simultaneously open the door to negotiations.
Furthermore, the situation in Europe seems particularly interesting. Analysts indicate that Europe has one clear advantage over the rest of the world: the situation in key eurozone countries like France and Germany is already so complex that further deterioration seems unlikely.
Experts note that France, the weakest link in the eurozone, can at most count on a "survival" scenario. The country struggles with insoluble political problems and unfavourable debt dynamics. According to the report, in the first trading days of 2025, the yields on 10-year French bonds exceeded Greek bond yields for the first time in history.
Analysts predict significant growth in Germany after the upcoming elections on 23 February. As reported, Friedrich Merz, leader of the CDU, is tipped to become the new German chancellor and proposes measures, including plans to reduce taxes and non-wage costs for companies. He is also considering exemptions from the "debt brake" rules, which traditionally limit the ability to increase public spending.
Hardy points out that Germany has long struggled with underinvestment in areas such as digitalisation and infrastructure. According to Saxo experts, their economic model, primarily based on exports from the heavy industry sector, faces significant challenges.
The report highlights key elements of Germany's strategy, which should include productivity growth, particularly through lowering energy prices, deregulation, increased infrastructure investment, and openness to innovation. Analysts emphasise that Germany's return to a path of dynamic growth may initially disappoint.
One of Europe's biggest uncertainties is the potential issuance of eurobonds at the eurozone level to finance massive new investments in national security. According to the report, initially, this would mainly concern military investments but also potentially secure long-term, cheaper energy sources, better trans-European infrastructure, and more efficient supply chains.
Europe needs to catch up to the U.S
Mario Draghi's document " The Future of European Competitiveness " presents many key actions to ensure Europe's competitiveness. Analysts pay particular attention to the need for comprehensive reforms and investments in strategic sectors of the European economy.
In a global context, the U.S. nominal GDP growth must exceed the average interest rate at which the Treasury issues debt. The report states that in 2025, the projected cost of servicing the Treasury debt will be £817 billion net, compared to less than £735 billion in 2024 and £530 billion in 2023.
Analysts also emphasise the significance of U.S.-China relations. According to the report, the possibilities for developments in These relations are incredibly diverse—from Trump's "G2" vision, where both countries solve global problems together, to the "G-Zero" world concept, where chaos prevails due to a lack of a dominant force in a multipolar power arrangement.
