Monthly House View
04.03.20262 min
Musical chairs: winners, losers and market rotation
Kevin Warsh has claimed his seat as the new Federal Reserve (Fed) Chairman, calming nerves over Fed independence, but with only one vote, the Committee’s balance—and our outlook—remains unchanged. Japan’s Prime Minister Sanae Takaichi secured her position in a decisive election, but expectations are high.
As artificial intelligence (AI) disruption reshapes winners and losers, diversification remains essential amid ongoing market rotation.
US: new Fed Chair, same direction
Economic momentum remained resilient in the US despite the government shutdown. Consumption was solid in October and November, while company surveys signalled continued growth, and investment was supported by data centre activity. Market expectations for US GDP growth have been continually revised up (to 2.4%), moving closer to our forecast. Strong consumption masks a significant divergence between income groups. We see Donald Trump’s potential affordability measures as an upside risk to 2026 growth, though many announcements appear more political than practical. Nevertheless, real income growth remains positive, and consumption should be supported by tax breaks and ongoing disinflation. US inflation started the year at 2.4%, below expectations and the lowest since Liberation Day. Kevin Warsh’s nomination as Fed Chairman does not alter our view of only one rate cut this year.
Euro area: external challenges, internal reform
We have revised our 2026 Euro Area GDP growth forecast by 20 basis points to 1.4%. This adjustment reflects resilient consumer spending and persistently low unemployment, despite weaker export activity to the US.
The European Central Bank (ECB) remains committed to structural reforms of the single market, with another rate cut expected as inflation continues to undershoot the central bank’s target at 1.7%. EU leaders have declared 2026 the year of competitiveness, with concrete reforms and deeper market integration on the horizon. Initiatives such as the creation of the “28th Regime” could further strengthen EU corporate integration and competitiveness.
Asian policy-supported growth
In China, policy support continues to underpin growth, while inflation remains well below 1%. However, the gap between state-backed activity and entrepreneurship is widening, signalling deeper structural shifts beneath the surface. India remains the region’s growth champion, with GDP expected to rise by 6.5%–7.0%, driven by robust domestic demand and new trade agreements.
In Japan, modest growth has returned (+0.1% quarter-on-quarter in Q4 2025) alongside easing inflation, providing the central bank with greater flexibility. The trade balance is once again positive, and high public debt remains manageable thanks to predominantly domestic financing.
