Markets Brace for Trumpflation as Rate Cut Mirage Fades
Markets Brace for Trumpflation as Rate Cut Mirage Fades
1
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
As Donald Trump embarks on his second presidential term, investors are shifting focus from a prolonged rate reduction period to what is being called 'Trumpflation'.
This marks a notable shift towards anticipating inflationary pressures under Trump's pro-growth policies.
Damien Hennessy, the Head of Asset Allocation at Zenith Investment Partners, highlights this change in sentiment as investors foresee potential inflation due to Trump's economic agenda coupled with record-high U.S. debt levels. Such dynamics could further intensify market volatility.
"Bond yields are climbing because the underlying U.S. economy has surpassed expectations, running into disinflationary headwinds seen in the last 12 to 18 months," Hennessy remarked. "This situation is now pressuring U.S. equity market valuations."
Reflecting on recent trends, back in September, low bond yields had investors bracing for a recession, with predictions for interest rates dropping to 2.8% by early 2026. Current expectations, however, have shifted towards a rate increase nearing 4%. The market has transitioned from forecasting up to nine cuts to possibly just one or two, signifying a significant turnaround.
Hennessy noted a rise in U.S. 10-year Treasury yields to 4.8%, impacting both the stock and bond markets. Concurrently, the U.S. dollar's rise has led to a depreciation of the Australian dollar to US62 cents.
"Market dynamics, driven by the anticipated rapid enactment of many of Trump's policies in 2025, hinge on sustained economic growth around 2.8%," explained Hennessy. "Yet, this optimism may face challenges as not all policies may be quickly executed as some expect."
With bond yields nearing 5%, Hennessy posits that bonds could offer substantial value for long-term investors, prompting a reconsideration of portfolio compositions to include bonds and duration. He added, "Until now, rising bond yields have been largely ignored by equity markets, but there comes a threshold where they begin to challenge equity valuations significantly."
The correlation between high bond yields and reduced risk premiums in equities necessitates confidence in continued earnings growth. Hennessy anticipates that the tension between bond yields and equity valuations will dominate market discussions throughout 2025.
Addressing the Australian market, Hennessy observed that local conditions remain challenging. "Valuations domestically are stretched, confronting Australian equities with a difficult environment. The sentiment may benefit slightly from a rate cut, but overall, the Australian share market faces considerable challenges."
The insights provided in this article are based on an analysis originally reported by Yasmine Raso on January 22, 2025.
Published:Wednesday, 22nd Jan 2025 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
In October 2025, Australia witnessed a notable decrease in personal insolvencies, with the Australian Financial Security Authority (AFSA) reporting 1,116 new cases. This marks a decline from 1,169 in September 2025 and an increase from 1,009 in October 2024. The breakdown includes 601 bankruptcies, 498 debt agreements, and 17 personal insolvency agreements. Additionally, 16 new temporary debt protections were recorded, offering individuals a 21-day respite from unsecured creditor enforcement to seek advice or consider insolvency options. - read more
The Reserve Bank of Australia (RBA) has released its October 2025 Financial Stability Review, providing a comprehensive assessment of the nation's financial system amid global uncertainties. The report underscores that Australia's financial institutions are well-positioned to navigate potential challenges, with households, businesses, and banks demonstrating resilience. - read more
The Reserve Bank of Australia (RBA) has issued a cautionary note to financial institutions, advising them to maintain prudent lending practices despite improvements in borrower financial health. Recent data indicates that the proportion of mortgage holders spending more than they earn has decreased to approximately 3%, down from 5% in mid-2024. This improvement is attributed to factors such as tax cuts and easing inflation. - read more
Recent data indicates a notable increase in mortgage refinancing across Australia, driven by borrowers seeking improved loan terms in response to escalating arrears, particularly among substantial loans. This trend underscores the financial pressures many Australians are currently facing. - read more
Australia's private debt market has experienced significant growth, with assets under management reaching A$224 billion-a 9% increase from the previous year. This milestone reflects a consistent shift in capital deployment within the Australian lending market, signaling a new chapter of innovation and flexibility. - read more
Welcome to Financial Planning 101: How to Get Ahead of Your Debt! If you're feeling overwhelmed by your financial situation, you're not alone. Many people struggle with managing debt and finding ways to achieve financial stability. - read more
Budgeting is the process of creating a plan to manage your money. Essentially, it allows you to allocate your income towards expenses, savings, and other financial goals. By keeping track of where your money goes, budgeting helps you ensure that you are not overspending and are prepared for future financial needs. - read more
Welcome to our guide on avoiding common mistakes when consolidating debts. We're glad you're here, as taking the time to educate yourself is a crucial step towards financial well-being. - read more
Debt consolidation is a financial strategy that has gained widespread attention, especially within the diverse economic landscape of Australia. It involves combining multiple debts into a single, more manageable loan, with the aim of simplifying the repayment process and potentially securing a lower interest rate. This approach can be particularly relevant for Australians juggling various forms of credit, from personal loans to high-interest credit card debt. - read more
Welcome to our blog, where we're dedicated to helping you make the most of your financial journey. Today, we're going to delve into an important aspect of financial health: tracking your progress after debt consolidation. - read more
