Trumponomics and European Real Estate

Economic

Summary:

The incoming US administration isn’t all bad news for Europe’s real estate investors.

At the high level, the America-first approach including the tariffs announced is no good news for the European economy. Though the planned fiscal boost to the US economy is likely to produce positive spillovers for the European economy in the short run, the tariffs, as well as possible retaliations, are likely going to hurt. While the exact conditions, timing and amount are unknown, the introduction of tariffs are expected to impede growth in Europe, particularly growth of the export-oriented countries, first and foremost the already buffed German economy.

Slower economic growth would, all things staying equal, negatively impact commercial real estate markets in Europe via the leasing market as European export-oriented firms would see their business decelerate. Furthermore, an increase in material costs and potentially imported inflation from the US might also pressure the European Central Bank to react on the interest rate side again, which would put pressure not only on the income side, but also on capital values. Slower growth, higher inflation and interest rates is poison for most asset markets, including real estate.

However, the picture is not all dark: all things do not stay equal.

As an obvious example, Trump's return has implications for Europe's security as he continuously threatened to withdraw the US support of NATO countries which do not meet their spending target of 2% of the GDP for defense. Europe will thus need to step up and there are already plans in motion to build a European Defence Union, appoint a Commissioner for Defence and ‘spend more, spend better, spend together’ on defense.1 While likely to react with some lag, logistics and manufacturing real estate would be a clear winner of regionalizing defense contracts.

In 2022, Europe spent EUR 240 billion on defense and would spend approximately EUR 80 billion more assuming all countries spent close to 2% of their GDP on defense, putting Europe’s defense expenditures at EUR 320 billion per year.2 However, estimates exist that are almost double, so the number may be much higher.3 But sticking to the lower estimate: between June 2022 and June 2023, EUR 75 billion, i.e., about one third of the defense budget, was spent on materiel. Nearly four-fifths of this was however procured outside Europe, mainly the US.4 Assuming that defense spending reaches 2% of nations’ GDP and the procurement share stays approximately constant, European defense procurement could be close to EUR 100 billion.

Clearly, if regional procurement increases, as is the EU commission’s aim, European defense contractors will likely need to expand their manufacturing capabilities, which may include larger real estate footprint, particularly in manufacturing. The demand for warehouses capable of facilitating the necessary changes in defense supply chains is likely to increase as well. This would come on top of any geopolitically-driven changes focused on e.g., securing the supply of critical raw materials and inputs in e.g., electricity generation and distribution, water supply and protection, sewage and waste management and other critical industries such as pharmaceuticals.

Furthermore, history moreover suggests that Trump brings volatility, which fuels demand for safe haven assets. Among others, that includes residential real estate, which is far less cyclical than the commercial segments. The residential sector in Europe is therefore likely to become a relative winner amongst different sectors of commercial real estate, especially as the shortage of housing is already acute and rents stay under an upwards pressure.

Trumponomics is likely to become an additional test for the European economy during a time where structural challenges are ongoing even without a change in the transatlantic partnerships. For the real estate sector, there are upsides too however as structural changes create opportunities for real estate investors. Real estate investors should thus follow the development attentively to benefit from structural changes in the European economy and the real estate sectors that serve the needs of the changing European economy.

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Goldman Sachs

Economic

The euro area economy is predicted to expand 0.8% in 2025, compared with the consensus forecast of economists surveyed by Bloomberg indicating 1.2% growth. German GDP is expected to contract 0.3% and France’s economy will shrink by 0.7%, while Spain’s GDP (again outperforming) will increase by 2%, according to Chief European Economist Sven Jari Stehn.

US President-elect Donald Trump’s planned tariffs are likely to weigh significantly on growth, with much of the drag stemming from higher trade policy uncertainty, Stehn writes in the team’s report, which is titled “Euro Area Outlook 2025: Under Pressure.” Although the region’s economy is expected to expand in the coming year, there’s a 30% chance of a significant recession.

How will tariffs impact the euro area economy?

While the size of any US tariffs is highly uncertain, Goldman Sachs Research finds that much of the drag to growth will come from higher trade policy uncertainty, rather than the actual tariff increases themselves. “Trade policy uncertainty measures have already been on the rise,” Stehn writes.

The Euro Area is Forecast to Avoid Recession Despite Trump Tariffs_1

Goldman Sachs Research’s baseline expectation is for the Trump administration to impose targeted tariffs on Europe, focusing on auto-related exports. Elevated trade tensions are projected to lower the level of area-wide real GDP by 0.5%. The hit is likely to be largest in Germany (0.6%) and smallest in Spain and Italy (0.3%), given differences in trade openness and manufacturing intensity. Our economists’ estimates suggest the hit to GDP would be twice as large in a scenario where the US imposes a 10% across-the-board tariff on the EU.

Europe’s manufacturing sector also faces structural headwinds. Energy prices have fallen markedly from their peak, but European gas prices remain notably above pre-2022 levels and are materially higher than in the US. China has emerged as a key competitor to European goods production, gaining material market share in industries that have seen cost increases.

“We see a continued structural headwind to the industrial recovery next year, particularly in Germany,” Stehn writes.

The Euro Area is Forecast to Avoid Recession Despite Trump Tariffs_2

Why the euro area is projected to avoid recession

At the same time, the euro area is also expected to undergo fiscal tightening next year. Germany’s “debt brake” will contain its scope for spending, while France aims to rein in its budget. The European Recovery Fund is expected to provide fiscal support in 2025, but the boost isn’t likely to be enough to fully compensate for the contraction in fiscal policy at the national level.

Despite those challenges, economic activity data for the euro area indicates modest but positive growth. Real (inflation adjusted) income is predicted to increase and savings are elevated, both of which are anticipated to support household spending. The economies in southern Europe are expected to be more resilient than those in the north.

“We look for growth moderation across the South next year, but we see greater resilience to trade tensions and competitive pressures from China than in the North,” Stehn writes. GDP growth in those countries has been underpinned by the services sector, elevated immigration, and investment from the Recovery and Resilience Facility.

Slow GDP growth will likely result in a softer job market next year. The unemployment rate, at 6.3% in September, is forecast to rise next year and to reach 6.7% by early 2026. Wage growth is projected to slow. “A softening labour market supports our view of cooling wage growth,” Stehn writes. “Following notable upside surprises early in the year, pay pressures have now cooled meaningfully.”

The Euro Area is Forecast to Avoid Recession Despite Trump Tariffs_3

Inflation is forecast to fall to 2% in 2025

Inflation has been declining since the summer, and headline and core inflation are projected to return to a sustainable 2% rate by the end of next year as services inflation cools.

“The outlook for inflation, however, remains notably uncertain,” Stehn writes. Depreciation in the euro could indicate stickier-than-expected inflation pressures. On the other hand, inflation could be more subdued amid a weakening job market and in the event of higher-than-expected US tariffs on China, which could incentivise China to sell excess goods at reduced prices into Europe.

Slow economic growth and declining inflation will likely pressure the European Central Bank to cut interest rates. Goldman Sachs Research expects the Governing Council to cut the deposit rate to 1.75% in July (from 3.25% in October). While 25 basis point cuts are more likely than 50 basis point reductions, there’s a “a low hurdle for a step-up in the pace in Q1 if the growth and inflation data disappoint notably,” Stehn writes.

Former ECB head Mario Draghi has identified policies that could help boost productivity and GDP expansion in Europe, but there are significant hurdles for implementation, particularly when it comes to joint EU funding. “However, we see scope for additional EU defence spending and some regulatory harmonisation from next year,” Stehn writes.

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BNP PARIBAS

Economic

As artificial intelligence (AI) continues to innovate industries, the critical role of networking infrastructure in supporting AI development is often overlooked. While much attention has been given to advancements in compute power and storage, the importance of networking is becoming increasingly apparent, especially with the rise of Large Language Models (LLMs) and AI inferencing.

BNP Paribas Exane research sheds light on how networking is an underappreciated but crucial area of AI investment. As AI models grow in complexity, so does the demand for networking infrastructure capable of supporting them.

The evolving landscape of AI networking infrastructure

The scaling of AI models and inferencing workloads has led to a shift in procurement strategies, particularly for hyperscalers and large enterprises that now prioritise networking infrastructure. This shift is evident in the growing demand for AI-enabled back-end networks and traditional front-end networks. Supporting AI clusters that span thousands of compute nodes requires robust networking systems, and investors are beginning to take note.BNP Paribas Exane shows that the Total Addressable Market (TAM) for AI networking could encompass 25% of total AI spending on accelerators. Furthermore, data-center switch sales could nearly double, and sales of back-end switches could even quadruple over the next few years.

"As AI technology evolves, the importance of networking infrastructure continues to grow, presenting unique opportunities for business and investors alike. "—Karl Ackerman (Managing Director, Semiconductors & IT Hardware, BNP Paribas Exane)

The battle for AI networking supremacy: Ethernet vs. InfiniBand

At the heart of AI networking there are two prominent technologies: Ethernet and InfiniBand. InfiniBand has historically dominated AI networking due to its ability to meet the stringent demands of back-end AI networks. However, Ethernet is catching up fast. With its inherent flexibility, Ethernet users are closing the performance gap and potentially even surpassing InfiniBand in certain areas.

BNP Paribas Exane examines that the Ethernet ecosystem is maturing rapidly. The industry is preparing for smart NICs (Network Interface Cards) with flexible ordering capabilities that will support packet spraying—a key innovation aimed for release by the second half of 2025.

The future of AI networking infrastructure

As the technology matures, BNP Paribas Exane anticipates that Ethernet will capture an increasing share of the AI networking market. By 2027, BNP Paribas Exane projects Ethernet will command 46% of AI workload networking—a significant leap that underscores the growing importance of networking in the AI universe.

" As AI continues to push the boundaries of technological innovation, the demand for sophisticated networking solutions will likely intensify. "

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SAXO

Economic

Cryptocurrency

Bitcoin ETF options are making waves: here's what you need to know

Bitcoin has made its way from obscure internet forums to the boardrooms of Wall Street, but a new development might be its most significant step yet. The debut of options trading on Bitcoin ETFs, starting with BlackRock’s iShares Bitcoin Trust (IBIT), isn’t just another headline for crypto enthusiasts—it’s a game-changer for investors everywhere.

But what exactly are these Bitcoin ETF options? Why are they so important, and how could they impact both the crypto market and traditional finance? As these sophisticated financial tools gain traction, they might just reshape how we think about Bitcoin and its role in global markets.

What are bitcoin ETFs and options?

Bitcoin exchange-traded funds (ETFs), like IBIT, offer investors a way to gain exposure to Bitcoin through traditional financial markets without directly holding the cryptocurrency. Options, on the other hand, are contracts that give the holder the right (but not the obligation) to buy or sell an asset at a specific price within a set time frame. These tools, long staples in traditional finance, are now being introduced to Bitcoin ETFs, providing a regulated and accessible way to hedge, speculate, or manage risk in the crypto market.

Market on Edge: Bitcoin ETF Options are Making Waves: Here's What You Need to Know_1

Bitcoin's path to market maturity

The debut of Bitcoin ETF options introduces a new level of sophistication to the crypto market. These instruments bring advanced risk management tools into a sector defined by volatility and retail speculation. Institutional traders can now apply strategies like covered calls and synthetic longs, long established in traditional finance, to Bitcoin without needing direct exposure.

Options trading also fosters market depth, reducing volatility by creating “natural buyers and sellers” on both sides of the order book. This contrasts sharply with Bitcoin's historical behavior, where news events often caused wild price swings. With IBIT options, Bitcoin may enter a new phase of tempered volatility, appealing to more institutional investors.

Market on Edge: Bitcoin ETF Options are Making Waves: Here's What You Need to Know_2

Broader impacts on the cryptocurrency ecosystem

The introduction of IBIT options could ripple far beyond Bitcoin. As traditional financial tools integrate into crypto markets, they could bolster investor confidence, attract capital to altcoins, and deepen blockchain infrastructure.

Notably, other ETFs like Grayscale and Bitwise are preparing to launch options products, while Cboe Global Markets will introduce the first cash-settled Bitcoin index options on December 2, 2024. These options, based on the Cboe Bitcoin U.S. ETF Index, are designed to track spot Bitcoin ETFs listed on U.S. exchanges. Such initiatives reinforce the growing legitimacy of digital assets and their adoption in mainstream finance.

Comparing IBIT and gold ETFs

To understand the significance of IBIT’s growth, consider a comparison with BlackRock’s iShares Gold Trust (IAU), a long-established ETF providing exposure to gold:

Assets under management (AUM): IBIT manages $48.43 billion, surpassing IAU’s $34.01 billion. This reflects the rapid demand for cryptocurrency exposure.

Trading volume: IBIT averages 66 million daily trades, far outpacing IAU’s 4.23 million. The liquidity highlights Bitcoin’s growing appeal as a tradable asset.

Premium/discount to NAV: IBIT trades at a -0.05% discount, while IAU trades at a +0.40% premium. This suggests efficient pricing for IBIT relative to its NAV.

Maturity: Launched in January 2024, IBIT is a newcomer compared to IAU, which has been a portfolio staple since 2005.

While IAU remains a cornerstone for conservative investors seeking stability, IBIT is proving to be a strong player in the rapidly evolving digital asset space.

Navigating market sentiment and expectations

Early trading data for IBIT options reveals a heavily bullish sentiment, with nearly 289,000 call contracts traded compared to just 65,000 puts on the first day. Speculative activity has driven some bets to extreme levels, with traders purchasing calls that imply Bitcoin prices exceeding $170,000.

While these “moonshot” strikes grab attention, many options traders are pursuing balanced strategies like covered calls or synthetic longs to manage risks. These approaches make IBIT options versatile, catering to speculators and cautious institutions alike.

Conclusion: a transformative step for Bitcoin

The launch of options on the IBIT ETF is a pivotal moment, reshaping Bitcoin's financial landscape. By introducing tools to temper volatility, improve liquidity, and deepen market participation, Bitcoin is evolving from a speculative digital asset to an integral part of mainstream finance.

As more Bitcoin ETFs introduce options and innovative derivative products emerge, the cryptocurrency space will likely become more resilient and diverse. The hidden impacts of Bitcoin ETF options are just beginning to unfold, promising to redefine how investors engage with the crypto market.

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FastBull Featured

Daily News

[Quick Facts]

1. US Core PCE Index Rebounds

2. UK Service Sector Business Confidence Falls to Its Fastest Decline in Two Years Due to Increased Taxes in Budget

3. Trump's Team Considers Three Potential Solutions to Resolve the Russia-Ukraine Conflict

4. Canadian Minister of Labour Announces Failure to End Post Strike

[News Details]

US Core PCE Index Rebounds

Following Thanksgiving Day, US data hit a peak with the release of October PCE data, which showed a YoY increase of 2.3% (up from 2.1%) and a MoM increase of 0.2% (up from 0.2%). The Core PCE Index rose by 2.8% YoY (up from 2.7%) and 0.3% MoM (up from 0.3%).

The Core PCE Index is up for the first time since June, primarily due to rising service prices. Core service prices increased by 0.4% MoM in October, the largest increase since March. Core commodity costs remained stable.

Despite the PCE data matching market expectations, the market's reaction to the continuation of inflation is relatively limited. However, uncertainty looms as the US market will face "Black Friday" promotions after Thanksgiving Day, marking the start of the holiday season. This period will provide insight into the US consumer market.

Greater uncertainty will emerge in early January when Trump returns to the White House. His actions and statements have already affected financial markets and market expectations.

UK Service Sector Business Confidence Falls to Its Fastest Decline in Two Years Due to Increased Taxes in Budget

The CBI reported that optimism among consumer services businesses fell from -19 in August to -55 in November, the lowest since August 2022. Business and professional service sectors also experienced a decline in optimism, falling from 9 to -29.

The decline in UK service sector business confidence is the fastest in two years, partly due to increased taxes in Chancellor Rishi Sunak's October 30 government budget. Consumer services suffered the most, with large service sector employers expected to bear a £25 billion increase in wage tax. The CBI noted that business and professional service sector confidence also worsened.

Weakened confidence, reduced hiring intentions, and increased cost pressures reflect, at least partially, the impending increase in employer National Insurance rates.

Trump's Team Considers Three Potential Solutions to Resolve the Russia-Ukraine Conflict

Two sources familiar with the situation said that Trump's national security advisor, Mike Waltz, has been weighing several potential solutions to the Russia-Ukraine conflict. Although details of the strategy are still being formulated, Trump's officials may push for an early ceasefire to freeze the conflict during negotiations between the two sides.

According to Keith Kellogg, the special envoy for Ukraine and Russia, the first proposal involves continuing military aid to Ukraine on the condition that Kyiv engages in peace talks with Russia and proposes an "American policy of seeking a ceasefire and resolving the conflict through negotiation." At the same time, Ukraine's desire to join NATO will be "postponed" for a longer period to encourage Russia to participate in negotiations.

The second proposal is based on a proposal made by Rick Grenell, a former US ambassador to Germany, who previously expressed support for creating "autonomous zones" in Ukraine. However, he did not elaborate on what this would look like.

Another idea is to allow Russia to retain the territories it currently controls in exchange for Ukraine joining NATO. However, few people in Trump's circle seem willing to invite Ukraine to NATO in the short term.

Canadian Minister of Labour Announces Failure to End Postal Strike

Canadian Labour Minister Steven MacKinnon announced through social media that the disagreement between Canada Post and the union is too great to reach an agreement and end the strike. He also announced that special federal mediators had temporarily stopped mediation. MacKinnon explained that the suspension of mediation activities would allow both parties to re-evaluate their positions and return to the negotiating table with renewed determination.

MacKinnon has requested that both parties meet in his office. If both sides can "restart productive negotiations," special mediators will resume contact with both sides. Canada Post began a national strike on November 15, involving approximately 55,000 postal workers, causing a complete halt to Canada Post's operations.

[Focus of the Day]

UTC+8 18:00 Eurozone Economic Sentiment Index for November

UTC+8 21:00 Germany November CPI

US Thanksgiving Day, Market Closed

Risk Warnings and Disclaimers

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ING

Economic

The average wage and salary in the Polish enterprise sector increased by 10.2% year-on-year in October (ING: 10.5%; consensus: 10.0%) following 10.3% YoY growth in September, reaching PLN 8,317 per month. The wage dynamics were supported by favourable calendar effects, while a high reference base in mining – where bonuses were paid in October 2023 – restrained growth.

In real terms (adjusted for inflation), wage growth in businesses slowed to 5.0% YoY from 5.2% YoY in September and nearly 10% YoY in the first quarter of 2024. Real wage growth has been systematically decreasing since the beginning of the year, and slowed down after the inflation rebound in July due to higher energy prices.

Household consumption growth was slower than the improvement in real disposable incomes in the first half of the year, indicating an increased propensity to save. In the second half, slower income growth was accompanied by a still-limited propensity to spend, and National Bank of Poland (NBP) surveys suggest that households are concerned about rising living costs in the future and are increasing their savings. This may be due to higher energy bills and negative experiences from 2023, when inflation significantly hit real incomes.

Wages growth moderates from its peak in 1Q24

Real wage and salary in enterprises, %YoY

Source: GUS, ING

Average employment in businesses decreased by 0.5% YoY last month (ING and consensus: -0.5%), the same rate as in September. Compared to September, the enterprise sector lost 4,000 jobs. Aside from July, all other months of this year have seen a month-on-month decline in the number of jobs.

In some sectors, there are ongoing group layoffs (e.g., automotive, household appliances) but generally, the economy is still struggling with labour shortages due to unfavourable demographic trends and a deterioration in net migrations. The StatOffice indicates that factors boosting wages include overtime payments, suggesting that the demand for labour remains high while the main barrier is limited supply.

Employment continues to decline slightly

Average paid employment in enterprise sector, %YoY

Source: GUS

The overall condition of Poland's labour market remains rather solid and unemployment is still near record-lows. The weakening of consumption seen in recent months is mainly due to behavioural factors (i.e., an increased propensity to save) rather than changes in household income situations.

We expect that consumption growth will be slower in 2025 than it was in 2024, and achieving economic growth in excess of 3% would require an investment rebound. This is indeed our baseline scenario as we see GDP growth of 3.5% in 2025. We anticipate that projects co-financed by structural funds and based on the EU's Recovery and Resilience Facility will commence.

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Brookings Institution

Economic

The fiscal outlook is bleak

Over the next 10 years, the Congressional Budget Office (CBO) projects federal debt—which currently stands at 99% of GDP—will rise to 122% of GDP, an all-time high. These 10-year figures will look worse if there is a recession, a war, or a tax cut. A sound fiscal path will require some combination of increases (not cuts) in taxes and reductions in spending growth.

Extending the temporary provisions of TCJA would be costly and regressive

Estimates based on CBO projections indicate that extending the expiring provisions in TCJA would cost over $5 trillion over the next 10 years in terms of lost revenue and added interest payments. The extension would also be highly regressive. A Tax Policy Center analysis shows that the top 1% would get nearly a quarter of the benefits, while the bottom 20% would receive less than 2%. If reductions in entitlement spending finance these tax cuts, the vast majority of low-income households will be worse off than if neither the tax cut extension nor the spending cuts were enacted.

Trump’s other tax cut proposals are costly

During the campaign, Trump embraced numerous additional tax cuts, including exemptions for income from tips, overtime work, and Social Security benefits, which together would cost an estimated $3.6 trillion over the next decade and would hasten the insolvency of the Social Security trust fund. He also proposed a full repeal of the cap on state and local tax deductions, which would cost another $1.2 trillion, plus tax breaks for car loan interest payments and military personnel, first responders, and Americans living abroad. He also proposed reducing the corporate income tax rate to 15%, which would cost at least $600 billion over the next decade. A tax cut for just domestic production would cost about half as much, but providing a targeted deduction would create room for gaming the system, as previous rules did in the past.

Tariffs create several problems

In addition to a broad 10 to 20% tariff on all imports, Trump has proposed 60% tariffs on all Chinese goods. Tariffs are estimated to generate $2.8 trillion over 10 years, accounting for their impact on the U.S. economy. But revenue will be lower in the nearly inevitable case that other countries retaliate.

Senate rules will limit tax policy choices

Republicans will have to use the budget “reconciliation” process to advance any bills that lack bipartisan support. Reconciliation imposes several restrictions. First, Republicans must enact a budget resolution, which determines how large a tax cut is possible. Second, a reconciliation bill cannot address Social Security and cannot increase deficits after 10 years. Therefore, any reconciliation tax bill (like the TCJA) must be temporary or be paired with a corresponding tax increase or a reduction in spending. These rules and some Republicans’ desire to limit deficit growth will create a search for so-called “pay-fors.”

Taken together, lawmakers could take tax policy in one of at least four directions:

Go big, permanently. Republicans might try to pass all the tax cut proposals on a permanent basis. This would cost approximately $10 trillion over the next decade (give or take a trillion). But that price might be too high, especially with required (and substantial) pay-fors after the tenth year.

Go big, temporarily. To keep the reported deficit increase low, Republicans could go for a wide range of tax cuts with expiration dates that can be extended later—exactly like the expiring provisions from TCJA. For example, a package that costs $10 trillion over 10 years would cost only about $2 trillion over two years. Coupled with $1 trillion of pay-fors, the package would have an official cost of just $1 trillion. This would be a bit of a budget gimmick, though, since the official budget score would not count the costs of extending those tax provisions.

Go small, permanently. Alternatively, they might enact some of the tax cuts, but on a longer-term basis. This would still require that the deficit not rise after the tenth year, so Republicans would have to include pay-fors.

Go for two tax cuts. Republicans might use reconciliation to enact the tax changes that lack Democratic support, after which policymakers could come together to pass a bipartisan bill with popular provisions like the Child Tax Credit.

No matter what path Republicans take, it will be a consequential year for tax policy. Buckle up.

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