In 2025, both domestic and international macroeconomic conditions face significant uncertainty. By the end of 2024, the market has reached a &#34;consensus expectation&#34; on several important levels, but &#34;uncertainty&#34; means that the probability of events occurring is difficult to measure in advance, and the potential risks of asset prices rising and falling due to policy paths being realized are very high. Therefore, we have selected six important economic themes, including U.S. tariffs, the path of U.S. inflation and the Federal Reserve's interest rate cuts, structural factors in China's economic growth, to analyze the significant &#34;expectation gaps&#34; that may exist in 2025, as well as the risks that break consensus in four market topics mapped to the RMB exchange rate, China’s bond rates, A-share styles, and stock market policies.
1. Tariffs will not lead to significant inflation in the U.S. Many academic institutions believe that Trump's tariff policy will lead to a significant rise in U.S. inflation, with PIIE estimating that the year-on-year growth rate of U.S. CPI from 2025 to 2027 will be 1.34→0.53→0.07% higher than the baseline scenario. In fact, the year-on-year growth rate of U.S. CPI fell from 2.07% to 1.71% between 2018 and 2019. The total profit margin of the foreign trade industry chain is divided into U.S. CPI, U.S. PPI, exchange rates, and foreign PPI, corresponding to U.S. consumers, U.S. traders, foreign traders, and foreign producers. During 2018-19, U.S. tariffs on China increased from 3.1% to 17.9% to 21%, during which U.S. trade PPI, exchange rates, and Chinese PPI absorbed 2.2%, 9.2%, and 5.9% of the shock, respectively, while U.S. households only bore 0.6%. Additionally, since core goods account for a low proportion of CPI, and the tariff shock on goods demand led to a decline in oil prices, this also contributed to the decline in CPI between 2018 and 2019.
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2. U.S. inflation will fall to 2%. The December FOMC indicated that the Federal Reserve raised its forecast for U.S. PCE growth in 2025 from 2.1% to 2.5%, while overseas analysts unanimously expect the year-on-year growth rates of U.S. CPI for Q1-Q4 2025 to be 2.5→2.4→2.6→2.5%. The cautious expectations of the market and the Federal Reserve regarding inflation in 2025 mainly stem from Trump's new policies. However, in terms of magnitude, U.S. inflation did not show significant upward movement after Trump's tax cuts and tariff policies were implemented in 2018. In terms of timing, if Trump's tariffs, immigration, and tax cut policies are implemented later, U.S. inflation will not have significant upward risks in the short term. On the contrary, we believe that driven by base effects, oil prices, and housing inflation, the year-on-year growth rate of U.S. CPI is expected to continue to decline from January to April 2025, reaching a bottom of 2.0% in April.
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3. The Federal Reserve will significantly cut interest rates in H1 2025. The dot plot from the December FOMC meeting indicates two rate cuts in 2025, with the market expecting these cuts to occur in H2 2025, primarily due to concerns over Trump's new policies. We believe that, influenced by a significant decline in non-farm payroll and inflation data, the Federal Reserve will bring forward the 50bps rate cut in 2025 to H1 2025. There is a 76% probability that Trump will immediately expel illegal immigrants upon taking office, which will have a significant short-term impact on the U.S. labor market (although it is difficult for Trump to completely expel illegal immigrants, it is easy to make them disappear from the labor market). The monthly increase in non-farm employment in the U.S. is expected to sharply decline from the current 150,000-200,000 to 50,000. After illegal immigrants exit the labor market, U.S. companies will rehire domestic labor, but this process will have a time lag, so wage inflation stickiness may manifest in H2 2025.
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4. China's exports exceed expectations. Considering: (1) Trump's commitment to over 60% tariffs on China in 2025 may be difficult to fully realize, and there may be maximum pullbacks; (2) after the U.S. imposed tariffs in 2018, our country increased its global export share through re-export trade and companies going overseas, significantly reducing reliance on exports to the U.S. and accelerating the diversification of exports; (3) if the Federal Reserve significantly cuts interest rates in H1 2025 and tax reduction policies are successfully implemented in 2025, wholesalers' willingness to restock is expected to be significantly restored, and the U.S. inventory cycle's restocking phase may continue until the second half of 2025. Our exports are expected to continue to exceed expectations.
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5. The Chinese real estate market sees sales and prices bottoming out and rebounding. Since October, the real estate market has shown three signs of &#34;stabilization.&#34; First, sales have returned to growth; second, housing prices in first-tier cities have started to rise; third, building material prices have increased. From high-frequency data, real estate sales are still improving in December. Therefore, if the consistent expectations of market improvement continue to strengthen in the coming months, a rebound in the real estate market in 2025 will become the biggest expectation difference for the domestic economy. If real estate sales and prices rebound in 2025, many expectations for the domestic economy and market will change accordingly. First, the improvement in the wealth effect will help boost consumption. Second, the domestic demand expansion brought by real estate will offset external demand pressure, potentially reducing other policy space. Third, the rebound in the real estate market will lead to price improvements, with nominal GDP growth rate exceeding real GDP growth rate again, which will also become another expectation difference for the domestic economy
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6. China's inflation growth rate has significantly rebounded. According to Wind's consensus forecast, the CPI year-on-year expectation for 2025 is 0.5%, and the PPI year-on-year is -1.5%. Based on a weighting of 70% for CPI and 30% for PPI, the GDP deflator year-on-year is expected to be approximately -0.1%. However, if the previous expectation materializes, meaning that real estate sales and housing prices show signs of bottoming out and rebounding, we will also see a significant rebound in China's inflation growth rate, and the GDP deflator will turn from negative to positive. For the domestic economy, the rise in prices will bring three significant improvements: first, an improvement in corporate profits; second, an improvement in employment for residents; and third, an improvement in government revenue, providing more fiscal maneuvering space.
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7. The RMB appreciates against the US dollar. (1) From the perspective of the factors affecting the rise and fall of the US dollar index, if France and Germany successfully form a new government in 2025 and smoothly pass the fiscal budget, the political situation in the Eurozone eases, and the major economies in the Eurozone stabilize their finances, along with the European Central Bank increasing the rate of interest cuts to further stabilize the euro's fundamentals, the market sentiment regarding the depreciation of the euro may improve, pushing the euro to appreciate against the US dollar, which may weaken the US dollar index. (2) Under the &#34;strong dollar&#34; pressure since November 2024, although the RMB has faced some depreciation pressure against the US dollar, according to the trading rules of the interbank market, the current RMB spot exchange rate has not &#34;hit the limit down.&#34; In 2025, China's export fundamentals remain solid, and the proportion of RMB settlement in import and export business continues to increase, which may alleviate market concerns about the risk of increased tariffs by the US. Once non-US currencies like the euro strengthen and the US dollar index tends to weaken, the RMB's unilateral exchange rate against the US dollar may return to an appreciation trend.
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8. The yield on Chinese government bonds has bottomed out. (1) Under the influence of various policies such as &#34;debt reduction&#34; and &#34;interest rate cuts and reserve requirement ratio cuts,&#34; the year-on-year growth rate of M1 in 2025 may turn positive and continue to rebound, indicating an increase in &#34;economic activity.&#34; Historically, the rebound in M1 growth rate leads the rebound in the inflation rate. When &#34;re-inflation&#34; is realized in 2025, exceeding expectations for the Chinese economy, monetary policy may proactively tighten liquidity, and the yield on Chinese government bonds may bottom out and rise due to improved inflation expectations, increased risk appetite, and the proactive restoration of a neutral monetary policy
(2) &#34;Debt Conversion&#34; In the early stages, the loan balance of financial institutions is affected by debt replacement, which may maintain low or even negative growth, pushing market interest rates to continue declining. However, &#34;debt conversion&#34; creates space for local fiscal support for investment and consumption in the real economy, which is conducive to stabilizing the economic fundamentals. At the same time, the asset quality of banks benefits from &#34;debt conversion,&#34; which will also expand the potential space for loan issuance. If the pace of &#34;debt conversion&#34; accelerates in 2025, realizing the effect of stabilizing growth, the China bond yield may face the risk of a mid-term rebound.
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9. The People's Bank of China directly purchases A-share ETFs. The consensus expectation for incremental funds in 2025 focuses on the stable and slow inflow of long-term funds, institutional funds waiting for fundamental verification to enter, and marginal increments mainly coming from individual investors and speculative funds. Based on the policy tone of &#34;extraordinary counter-cyclical adjustments,&#34; the central bank is expected to begin &#34;moderate easing&#34; in 2025, and with the innovation of liquidity tools for the capital market since 2024, we believe that the central bank's direct purchase of stock ETFs may become a differential expectation in terms of funding. Referring to overseas experiences, the current policy environment basically meets the conditions for implementing direct purchases. To further enhance the stability of the capital market and adjust market liquidity, in coordination with SFISF, the expected implementation method for the central bank's purchase of ETFs may be more targeted, such as purchasing ETFs with a higher proportion of R&amp;D funding, specifically supporting ETFs with a higher proportion of new productive enterprises, accurately targeting new directions for economic transformation, and encouraging enterprises to increase investment in specific fields.
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10. Core assets significantly outperform the index. Based on our assumptions in expectation differences five and six, if the expectation difference of a rebound in real estate sales and housing prices is realized, the concerns of institutions regarding the speed of economic recovery, the elasticity of corporate profit growth due to rising inflation, and the tools for credit expansion will show significant improvement. On one hand, the risk appetite of institutional funds will be restored, and on the other hand, the profit growth of listed companies is also expected to rebound accordingly. With speculative funds and retail investors being relatively active, maintaining an average transaction volume above one trillion, the participation of institutional funds is expected to further enhance market liquidity. Currently, the transaction volume of institutional funds accounts for about 3 to 6 times that of speculative and retail investors, while around 2020-2021, it was about 15-35 times. If institutional funds enter the market significantly, they may regain pricing power in the market, and core assets are expected to significantly outperform the index.
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In addition to the ten uncertainties mentioned above, the biggest uncertainty in 2025 is how the Trump Trade 2.0 will unfold and its impact on the prices of major asset classes. To address this key issue, Wall Street Insights has invited Dr. Lu Zhe to elaborate on the macro trading theme of Trump 2.0 on January 18, 2025 (two days before Trump is sworn in as President of the United States), to explore the new macro variables under &#34;de-globalization.&#34;
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<h2>Event Details</h2>
Event Date: January 18, 2025, Saturday (Half-day class in the afternoon)
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In 2025, the macroeconomic environment both domestically and internationally faces significant uncertainty. The market reached a consensus expectation by the end of 2024, but high risks still remain. This analysis covers six important economic themes, including U.S. tariffs, inflation trajectory, and the Federal Reserve's interest rate cuts, exploring potential expectation gaps and their impacts on the RMB exchange rate, China’s bond rates, A-share styles, and stock market policies. The impact of tariffs on U.S. inflation is underestimated, and it is expected that U.S. inflation will fall back to 2%

- In 2025, global macroeconomic uncertainty is significant, with key themes including U.S. tariffs, inflation, and China's economic growth.  
- The article analyzes potential discrepancies in expectations regarding these themes and their impact on markets, such as the RMB exchange rate and A-share policies.  
- It highlights that U.S. tariffs may not significantly drive inflation, while China's exports and real estate markets are expected to perform better than anticipated, influencing overall economic conditions.

Top Ten "Inconsistent" Expectations for 2025