US midterm elections focus on controlling inflation; weak recovery and slowing inflation in the eurozone economy --- W09 Overseas Macro Brief

US midterm elections focus on controlling inflation; weak recovery and slowing inflation in the eurozone economy --- W09 Overseas Macro Brief

```

  1. The U.S. midterm elections are affecting Trump's domestic and foreign policies this year, while living costs and affordability have become the core topics of the campaign. High prices, high interest rates, and high taxes are eroding people's real purchasing power. In response, Trump has implemented measures in the food, energy, and housing sectors.
  2. The eurozone economy is showing signs of weak recovery, with the manufacturing PMI entering the expansion range in February, and the services PMI remaining strong. Although inflation readings have eased across the board, the labor market remains tight. Facing uncertainty in both internal inflation outlook and external geopolitical conditions, the market expects that the ECB will not cut rates in 2026.

I. U.S. Midterm Elections Centered on Controlling Inflation

U.S. Midterm Elections Centered on Controlling Inflation (Huatai)

Huatai points out that the U.S. midterm elections are affecting Trump's domestic and foreign policies this year, while living costs and affordability have become the core campaign topics. High prices, high interest rates, and high taxes are eroding people's real purchasing power. Accordingly, Trump has implemented measures in the food, energy, and housing sectors.

  1. With the midterm election approaching, most of Trump's domestic and foreign policy moves this year are influenced by electoral considerations.
    • In the Senate, the Republican advantage is solid, making it difficult for Democrats to turn the tide.
    • In the House, the current electoral situation is unfavorable to the Republicans. Trump may intervene in the election process in swing states.
  2. Living costs and affordability are the core campaign issues.
    • Trump is facing the same dilemma as Biden did in 2024 and must address the issue of high prices directly.
  3. Trump pressures the Fed to cut rates, reduce taxes and fees, and uses subsidies to control inflation.
    • In the prices of groceries, housing, and energy, Trump has already taken actions such as exempting coffee and beef from import tariffs, returning to traditional oil and gas energy sources, and restricting institutional investment in single-family homes.
    • Subsequent measures may include setting caps on credit card interest rates, relaxing restrictions on the use of home purchase funds, and exempting more daily goods from tariffs.

Although U.S. inflation remains relatively stable, high prices, high interest rates, and high taxes are causing a “K-shaped divergence,” with living costs rising faster than average wage growth, eroding real purchasing power of residents.

II. Weak Recovery and Eased Inflation in the Eurozone Economy

Weak Recovery and Eased Inflation in the Eurozone (Bohai)

Bohai points out that the eurozone economy is showing signs of weak recovery, with the manufacturing PMI entering the expansion range in February and the services PMI remaining strong. Although inflation readings have eased across the board, the labor market remains tight. Facing uncertainty in both internal inflation prospects and external geopolitical conditions, the market expects the ECB will not cut rates in 2026.

  1. At the beginning of the year, the eurozone economy was in a weak recovery, but leading indicators are strong.
    • In February, the manufacturing PMI entered the expansion range for the first time since mid-2025, with output and new orders indices reaching recent highs.
    • The services PMI also remained strong.
    • Due to increased spending on defense and infrastructure, Germany has become the main contributor to economic improvement.
    • France's composite PMI is still in the contraction range.
  2. Although inflation has eased, the labor market remains tight.
  4. The ECB is expected to keep policy rates unchanged in the short term.
    • The ECB reiterates that inflation is at an appropriate level.
    • With uncertainty in both internal inflation prospects and external geopolitical conditions, the market does not expect the ECB to cut rates in 2026.

In the fourth quarter, contractual wages rose significantly year-on-year, which may become an important factor in future inflation trends.

Risk DisclaimerThe market has risks, investment needs caution. This article does not constitute personal investment advice and does not take into account the unique investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular situation. Investment based on this is at their own risk. ```