10 January 2025
Summary
Read the full report
In summary:
Capital markets themes 2025 – lessons from the first quarter of the century
As we enter the second quarter of the century, markets grapple with critical questions shaped by recent economic and geopolitical shifts. Central bank rate cuts will continue on both sides of the Atlantic, aligning again with falling 10-year yields, though the pace will slow in the US due to renewed inflationary pressures. France’s fiscal challenges will likely keep its bond yields above those of Greece, Portugal and Spain – a novum since last year. US equities will maintain their global leadership, supported by structural advantages (AI, reshoring, defense) and despite valuation concerns. Corporate spreads will stay near historic lows backed by strong fundamentals and a decent sectorial mix, which should offset risks from geopolitics. Last but not least, Chinese government bond yields are poised to dip below Japan’s for the first time, driven by deflationary pressures and persistent economic headwinds.
As maritime shipping has become lengthier, more costly and riskier, rail transportation between Europe and China through Central Asia is becoming more and more competitive and attractive. Although capacity remains low, with transportation time more than 50% shorter and costs currently nearly 10% cheaper than maritime freight, rail is a credible and relevant transportation mode for time-sensitive industries such as electronics, auto, pharma and luxury/fashion. Europe needs to seize the opportunity, collaborate with China and Central Asian countries to develop these routes, avoid the pitfalls of the Belt and Road Initiative and increase its supply-chain resilience.
Energy crisis in Europe, season 2?
Gas prices in Europe are surging again to levels unseen since fall 2023. This surge is not only due to the halt of Russian gas flows to the EU since the new year but mostly because of high gas consumption as the continent is facing a “normal” winter after two consecutive mild ones. On top of higher gas consumption, the weather is also leading to lower renewable electricity production, compounding issues for the bloc. Should consumption and drawdowns on storage continue at the current pace, the EU could end the winter season with low inventories (30-40% vs 56% in late March 2024). This could make gas prices 30% higher in spring 2025 compared to a year ago, which would pose inflationary risks for 2026 as regulated retail prices for electricity are scheduled to decrease in 2025 in many countries. The recent developments are a reminder that energy prices will remain higher for longer in the EU, at least 50% above pre-war in Ukraine levels. Policies should address this matter if Europe means to revive its industry.
Authors
Françoise Huang
Allianz Trade
Allianz Trade
Ano Kuhanathan
Allianz Trade
Allianz Trade
Yao Lu
Allianz Trade
Subscribe to our newsletter
Weekly on Allianz markets, macro, sector & insurance research by Ludovic Subran
You may also be interested in...
Our expertise and commitment
Allianz Trade is the global leader in trade credit insurance and credit management, offering tailored solutions to mitigate the risks associated with bad debt, thereby ensuring the financial stability of businesses. Our products and services help companies with risk management, cash flow management, accounts receivables protection, Surety bonds, business fraud Insurance, debt collection processes and e-commerce credit insurance ensuring the financial resilience for our client’s businesses. Our expertise in risk mitigation and finance positions us as trusted advisors, enabling businesses aspiring for global success to expand into international markets with confidence.
Our business is built on supporting relationships between people and organizations, relationships that extend across frontiers of all kinds - geographical, financial, industrial, and more. We are constantly aware that our work has an impact on the communities we serve and that we have a duty to help and support others. Everyone at Allianz Trade is encouraged and supported in giving back to communities around them and sharing the benefit of our skills and resources. As a financial services business, we are especially dedicated to raising the level of financial literacy through our business Tips & advice so that individuals can live their lives in confidence and security. We are also strongly committed to fairness for all, without discrimination, among our own people and in our many relationships with those outside our business.