Investing.com – The inauguration of President Donald Trump takes place later Monday, and marks a critical moment for Europe, creating both threats and opportunities, according to BCA Research.
“The first months of the second Trump presidency will be filled with uncertainty and will accentuate major headwinds to European growth and assets,” said analysts at BCA Research, in a note dated Jan, 20.
“However, this drag will soon subside as Trump’s fiscal proposals are curtailed and Europe and the US reach trade deals. Remain defensively positioned in European markets for now, but remember that a long-term buying opportunity is near.”
Europe is heavily exposed to President Trump’s trade war. However, uncertainty is the main vector of pain. It will eventually recede as Europe and the US have enough common ground to reach a mutually beneficial deal.
The coming administration’s stance on Ukraine will help Europe. However, its tough position toward Iran creates near-term risks to European growth and inflation.
President Trump’s fiscal proposals are a mixed bag for Europe. On the one hand, stronger US growth helps European exports. On the other, the strength of the US economy is causing financial market moves that drain liquidity away from Europe. Ultimately, financial markets will not allow President Trump to deliver his tax cuts fully.
The new administration’s deregulation program will put pressure on Europe to increase the pace of integration, which will generate a growth dividend for Europe over time.
President Trump’s immigration policy will remove a significant tailwind to US growth, which will help Europe attract more capital over time.
In the near term, the uncertainty stemming from tariff threats and the tug-of-war between tax cuts and bond market volatility will continue to dominate the performance of European assets, creating meaningful headwinds in the first part of 2025.
