November 11, 2024 Edition

Welcome to this week’s newsletter, where we explore significant developments in the political and economic landscape following the recent U.S. presidential election. Key themes include market reactions to Trump's victory, the Federal Reserve's latest rate decisions, and China's new debt management strategy.

Trump’s Election Victory: A New Era of Economic Policies and Market Dynamics

(Source: Bloomberg) Donald Trump's historic comeback in the recent U.S. presidential election, where he defeated Kamala Harris to become the 47th president, has sparked a wave of market optimism. With Republicans regaining control of the Senate, Trump has pledged sweeping policy measures, including corporate tax cuts, tariffs, and deregulation, particularly for digital assets like cryptocurrency.?

Financial markets reacted positively, with notable increases in S&P 500 futures and Bitcoin, alongside rising bond yields. However, his commitment to escalating trade disputes raises concerns about potential disruptions in global commerce. Despite significant support from key backers like Elon Musk, economists warn that Trump's policies could lead to higher inflation and an increased national debt.?

Overall, while Trump's victory is expected to boost short-term economic growth, the implications for the private market and small-to-medium enterprises (SMEs) remain complex, with a focus on leveraged buyouts potentially becoming more advantageous than traditional venture capital investments in this new economic landscape.

Fed Rate Cut Signals Confidence Amid Economic Uncertainty?

(Source: Bloomberg) The Federal Reserve's recent decision to cut interest rates by 25 basis points, bringing the federal funds rate to a range of 4.5%-4.75%, reflects a proactive stance in a shifting economic landscape. Fed Chair Jerome Powell affirmed his commitment to his position, indicating he would not resign if asked by re-elected President Trump, amidst ongoing fiscal policy uncertainties. While the Fed views risks to employment and inflation as "roughly in balance," with inflation easing to 2.1%, the labor market remains solid despite some signs of softening.?

The Federal Reserve's tone in this FOMC meeting has shifted to a slightly hawkish stance, signaling caution on inflation and upcoming data. Despite expectations for rate cuts, we forecast middle-market uni-tranche direct lending yields to remain strong at around 10% through 2025, with potential upside under Trump’s new administration. Meanwhile, the private equity market is gaining momentum, driven by abundant capital and a favorable IPO outlook in a lower-rate environment, presenting an optimistic landscape for investors.

China’s $1.4 Trillion Debt Swap: A Strategic Move Amid Economic Challenges?

(Source: Bloomberg) China has announced a substantial 10 trillion yuan (US$1.4 trillion) program aimed at refinancing local government "hidden" debt through 2028, a move designed to address critical financial risks without launching immediate consumption-boosting measures. This program includes a mid-year adjustment to local governments' debt ceilings, facilitating additional borrowing. While the initiative targets significant economic risks associated with local government debt—identified as a major concern by President Xi Jinping—market reactions have been tepid, reflected in a weakening offshore yuan and a ~2% decline in the Hang Seng Index.?

Economists anticipate that further fiscal measures will be necessary to mitigate the potential impacts of tariffs under President Trump’s administration. Overall, while the debt swap aims to strengthen financial stability, its limited market enthusiasm underscores ongoing uncertainties in the broader economic landscape.

This week’s updates highlight a pivotal moment in U.S. politics and its implications for the economy. As we navigate these changes, we encourage you to reach out to our team at https://www.altive.com/en for further discussion or support regarding how these developments may impact your investments and strategies.

Disclaimer: This newsletter contains information from public sources, and any investment decisions made based on its contents are at the reader's own risk.? Investing involves risks and might result in loss of capital invested.? Past performance is not a guarantee of future results.?

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