FinTechTalk: Are you ready for 2025? Hope for the best, prepare for the unpredictable 

On 15 October 2024, FinTechTalk host Charles Orton-Jones was joined by Boris Kovacevic, Global Macro Strategist, Convera and George Vessey, Lead FX & Macro Strategist, Convera. 

 

Manual processes and automation 

The Small Business Optimism Index edged up by 0.3 points in September to 91.5, according to a survey released by the National Federation of Independent Business. This level is below July’s 18-month high, but above most of this year’s measures.

 

At the same time, the NFIB Uncertainty Index surged 11 points last month, hitting the highest point on record. The most pressing issues include inflation and difficulties of recruiting talent. Uncertainty is on the rise too despite a relatively robust economic environment. It’s partly down to the looming events of the year such as the autumn budget in the UK or the US elections. 

 

Although the latter, by its nature,  calls for a binary scenario planning, it makes more sense to examine multiple scenarios depending on who wins majority in the Senate and the Congress, as well as other factors. What the market is most concerned about is that one party might rule both the executive and the legislative branch of the US.

 

Tariffs can have inflationary impact, as well as the unintended consequence of a number of countries turning away from the dollar. The riskiest scenarios are when Trump loses and refuses to concede or if the Republicans win not only the presidential election but a majority in the Senate and the Congress (the Red sweep) as well.   

 

The UK and the Euro-zone 

Despite forecasts of a recession last year, the UK economy is relatively robust. Meanwhile, several countries in the EU are facing difficulties. The indicator of this is that the GBP-Euro rate is at a two year’s high at the moment. In Europe, the absence of turmoil is not necessary a sign of strength. Germany is going through a restructuring at a level that we haven’t seen since reunification and industrial production is 25% below trend. If the US and China imposes tariffs on each other’s goods, this will certainly lead to slowbalisation.

 

The UK would also be impacted by tariffs, but the German economy has much bigger trade with China. If the exceptionalism between the US and other countries narrows, that will favour procyclical currencies including the Pound.

 

The Japanese Yen, the third largest currency in trading volume, may become more attractive as a safe haven during geopolitical tensions. Thanks to the plethora of risk events forecast to coming up, financial decision makers on FX and equity markets can be seen to put some more long-term hedging strategies into place.  

 

The panellists’ insights 

• For Convera’s forecast, click here.