Le Drame

Economic

Summary:

Appetite on Wednesday was limited on both sides of the Atlantic Ocean.

Appetite on Wednesday was limited on both sides of the Atlantic Ocean. In the US, the crowded economic data came in mostly in line with expectations, confirming that the US economy grew 2.8% in Q3 – mostly explained by a robust 3% growth in sales, price pressures were slightly higher than expected but remained below 2%, as core PCE prices for last quarter decelerated faster than expected. Core PCE prices for October, however, posted a small uptick from 2.7% to 2.8%, parallel to market expectations and the initial jobless claims came in softer than pencilled in. Overall, there was no big surprise in recent data. And the latter gave comfort to investors that the Federal Reserve (Fed) will cut its rates by another 25bp when it meets in December. That probability advanced from around 65% to 68% and the US 2-year yield tipped a toe below the 4.20% level.

But the lower yields, and the first day of ceasefire between Israel and Hezbollah, couldn’t convince investors to buy more US equities into the Thanksgiving holiday. The aggressive reaction from both Mexico and Canada to Trump’s latest tariff threats certainly revived worries of higher business costs and lower profits. As such, the S&P500 closed Wednesday’s session a few points below the 6000 mark, Nasdaq 100 retreated 0.85% as Dow Jones closed in the negative after hitting a fresh record. Microsoft dropped more than 1% on fresh news that the FTC opened a fresh antitrust investigation into the company ‘drilling into everything’ – yes everything they do – while Apple resisted to the news that its iPhone sales barely grew this year as Android-based rivals gained ground in China and in other emerging markets.

Meme news. A drone company called Unusual Machines rallied 110% on news that Donald Trump Jr. – yes Trumps’s eldest son — has joined the company’s advisory board reminding ‘the need for drones is obvious’ and that they must ‘stop buying Chinese drones and Chinese drone parts’. Interestingly, the company warned in a regulatory file that Trump’s proposed tariffs on China could affect its ability to source drones critical to its B2C business.

Le drame

In Europe, things were much less fun – as it is usually the case. The Stoxx 600 extended losses, and not only because of Trump’s tariff threats, but also on the rising unease in French politics, where Marine Le Pen, the far-right leader – who gained ground in the latest elections, remember? – threatened Michel Barnier’s administration – that’s doing its best to control the country’s deteriorating finances and deficit – that she would bring his government down with a no-confidence vote if he doesn’t respect their budget demands.

Needless to say that the spread between the French and German 10-year yields is rising again, even though Germany has its own political problems – mind you – and is preparing to hold a snap election because people, there, are not happy with Scholz’s government either.

Thank God, the growing French headache remains localized, for now. The French CAC40 underperformed its European peers as French bank stocks took a hit on the political chaos, but the EURUSD rebounded well past the 1.05 level – and even advanced near 1.0590 recently following the other majors up against a broadly weakened US dollar. The worsening political scene in France and the widening yield gap between France and Germany, could however limit the single currency’s upside potential along with clashing opinions from the European Central Bank (ECB) members about how fast the bank should cut rates. ECB’s Schnabel said that the borrowing costs are no longer at a level that retrains the economy, while Luis de Guindos said – a day earlier – that more rate cuts were on their way. One thing is clear, though: while German representatives often sound more hawkish than their southern counterparts, Germany’s economy arguably relies on ECB support more than any other in the union at this point.

For now, the EURUSD has potential to extend a recovery following an aggressive selloff in November. Today, Germany and Spain will reveal their November early CPI figures. The figures are expected to print an uptick in price pressures this month. If that’s the case, the ECB doves could lose ground and let the euro bulls gain field. Also note that, the latest rise in European nat gas prices will somehow impact the inflation numbers in the coming months, and Europe is said to be facing the coldest winter since Russia invaded Ukraine and since the continent gave up on Russian energy supplies. The latter means that the gas reserves will decline faster than otherwise, adding a renewed pressure on gas and broader consumer prices. Such situation would limiting ECB’s rate cutting plans and throw a floor under the euro’s weakness. The next important target for the EURUSD recovery stands at 1.0672 – the minor 23.6% Fibonacci retracement on September to now selloff.

Elsewhere, the USDJPY benefited grandly from a broad-based dollar weakness to extend its retreat to 150 level. However, note that, released earlier this week, the Bank of Japan’s (BoJ) core CPI measures eased unexpectedly to 1.5%, a number that doesn’t necessarily back the BoJ normalization bets.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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ING

Economic

Global Macro and Markets

Global Markets: With the US closed for Thanksgiving yesterday, and many market participants likely extending the holiday to the weekend, there isn’t too much action in financial markets to talk about. No US Treasury prices obviously. But bond yields were down in Europe. 10Y German bund yields dropped 3.4bp to 2.124%, and French 10Y yields fell 7.3bp, taking the yield down to 2.943%. and just below equivalent yields on Greek bonds, after they had hit headlines earlier in the week by exceeding them. EURUSD was pretty flat all day yesterday and is currently sitting at 1.0560. There wasn’t too much going on in the G-10 FX space, though the JPY drifted up to near the 152 level before recovering and will be supported this morning by the hotter-than-forecast Tokyo CPI data (see more below). Other Asian FX was also fairly quiet, though the THB and IDR made small gains in the region of 0.4%. US equities were also off for the day, but European bourses managed to eke out some small gains and the Eurostoxx 50 was up about 0.5%

G7 Macro: This was obviously a quiet day with no US data to focus on. Germany’s preliminary harmonised CPI inflation for November was unchanged from October at 2.4%YoY. Still, other German national measures increased, and make it less likely that the ECB will deliver 50bp rate cuts in December. There is further Euro area inflation data out today, which will potentially shape this story further.

There were also some marginally less horrible confidence figures out for the Euro area – though these remain fairly dire.

For the rest of the G-7, Canadian 3Q24 GDP may be the main release to watch out for. The market consensus is for an annualised growth rate of just 1.1% QoQ, down from 2.1% in 2Q24.

Japan: Tokyo CPI should be the highlight of the day and the most watched data of today's data dump. Tokyo consumer price inflation jumped more than expected to 2.6% YoY in November (vs 1.8% in October, 2.2% market consensus) mainly due to a surge in fresh food prices (10.6%). Utilities also rose 6.5% as the temporary summer subsidy program ended. Core inflation (excluding fresh food) also rose more modestly to 2.2% YoY from 1.8% in October, though it was still higher than the market consensus of 2.0%. Core-core inflation (excluding fresh food and energy) also edged up to 1.9% (vs 1.8% in October) in line with the market consensus. On a monthly basis, inflation rose by 0.5% MoM, with goods and services up by 0.8% and 0.2% respectively.

Looking ahead, energy bills will create monthly volatility in inflation. The summer subsidy program ended in October, but new PM Ishiba has decided to reintroduce another support measure from January. Consequently, we will continue to focus on the two core indices more closely than the headline numbers.

Japan’s industrial production rose 3.0% MoM sa in October, accelerating from the 1.6% rise in September. However, it didn’t meet the market consensus of a 4.0% rise. Technical paybacks from earlier car production disruptions and the waning impact of weather-related effects appear to have boosted overall production. This means that GDP recovery is likely to continue in the 4th quarter. However, the outlook survey suggested that output declined in November and December, so the coming months’ data will be important to watch.

Retail sales rebounded 0.1% (vs -2.2% in September). Most items experienced a decline in sales, but this was more than offset by a large gain in motor vehicle sales. These rose 11.8%. We believe that this is related to the earlier production disruption and do not expect this gain will be sustained in the coming months.

In a separate report, labour market conditions were shown to be relatively healthy. The jobless rate edged up to 2.5% in October (vs 2.4% in September, 2.5% market consensus) but the job-to-application ratio also ticked up to 1.25, recording a second monthly rise.

We note that the acceleration in inflation, combined with the solid recovery in monthly activity, increases the odds of another BoJ rate hike in December.

South Korea: Production, sales, and investment declined in October. Weak monthly activity data in October signals that the expected 4Q24 GDP rebound may be weaker than previously expected. All industry production (IP) fell -0.3% - falling for a second month. Manufacturing & mining output stayed flat; a bit better than the previous month but missed the market consensus. Semiconductor output rose 8.4% while car output declined 6.3%. For services, output rose 0.3% on the back of a strong gain in financial services (3.1%). However, more the important gauge for consumption, whole/retail sales declined -1.4%.

For consumption, retail sales declined 0.4% in October with durable goods (-5.8%) sales down. For investment, both equipment investment (-5.8%) and construction (-4%) declined.

A weak start to the quarter tends to weigh more heavily on quarterly results. Consequently, today’s weaker-than-expected IP suggests a cloudy outlook for 4Q24 GDP. We will get to see the 4Q24 GDP outcome next January. This is likely to prompt another rate cut by the BoK in February.

India: India's GDP growth for the third quarter will likely decelerate slightly to 6.6% YoY from 6.7% in the previous quarter, largely driven by weather disruptions impacting agriculture output.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Pepperstone

Economic

As noted, the US economy has performed well throughout the past 12 months, with GDP having grown at, or quicker than, 3% annualised QoQ in three of the last four quarters, and the economy having expanded by more than 2% annualised QoQ in all but one of the last 9 quarters. Not only is this a resilient pace of growth in isolation, it also represents continued US economic outperformance compared to other DM economies.

2025 Outlook: USA – Resilient Growth Amid Rising Uncertainty_1

At the same time, the economy has continued to make progress back towards the FOMC’s 2% inflation aim. Headline CPI rose 2.6% YoY in October, a considerable decline from the 3.4% YoY pace seen at the tail end of 2023, while both core, and supercore, inflation metrics have also continued to subside. Judging by the Committee’s preferred price metric, the PCE price index, the battle against inflation has been all-but-won, with said index rising just 2.1% YoY in October, its slowest pace in over three years.

2025 Outlook: USA – Resilient Growth Amid Rising Uncertainty_2

That said, the ‘easy’ work appears to have now been done, with risks to the inflation outlook tilting to the upside into the year ahead.

Some of said risks are already embedded, with services prices having remained elevated, and with the labour market remaining tight. Despite headline nonfarm payrolls growth having slowed of late, largely a result of weather events, headline unemployment remains just north of 4%, and participation just shy of cycle highs at 62.6%, indicating little by way of slack within the labour market. In turn, earnings pressures are likely to persist, with annual earnings growth still running around 4%.

Meanwhile, recent political events also raise the probability of a resurgence in price pressures. The return of President Trump to the White House brings with it the prospect of a return to the 2016-2020 era of tit-for-tat trade tariffs being imposed, seemingly on a whim. Already, the incoming administration has announced 25% tariffs on imports from Canada and Mexico, as well as an additional 10% tariff on Chinese goods. During the election campaign, Trump also touted a ‘blanket’ 20% tariff on all imports into the US.

Naturally, one would expect the cost of any tariffs to be borne by the US consumer, as opposed to corporates absorbing costs, and eroding profit margins. Hence, the risk of a bounce in inflation towards the middle of 2025 is a significant one, with a much bumpier inflation path set to be followed next year. Said tariffs also introduce downside growth risks, though these should – at least to some extent – be offset by fiscal loosening, and are unlikely to become fully apparent over the course of the coming year.

2025 Outlook: USA – Resilient Growth Amid Rising Uncertainty_3

Upside inflation risks also stem from Trump’s immigration proposals, particularly the potential mass deportation of undocumented immigrants. While the precise impact of immigration on the employment situation is difficult to quantify, such a policy, were it enacted, could result in as many as 8 million workers being forced to leave the labour force, likely sparking a scramble for skills among employers, raising wages in the process.

Though the second Trump Presidency poses a significant risk of higher inflation, via tariffs, fiscal policies outlined by the incoming administration are likely to be reflationary in nature.

Chiefly, Trump’s initial plans centre around tax cuts, firstly extending those that were introduced during his first time, while likely also bringing further such measures to the table to provide an additional economic sugar rush. That said, how incoming Treasury Secretary Bessent squares further tax cuts with a desire to half the budget deficit to 3% of GDP remains to be seen. Deregulation proposals are also likely to act as a fillip to growth, while helping the equity market as well, though specifics here remain relatively thin on the ground. One would expect the majority of these proposals to be ‘front-loaded’, as Trump attempts to take advantage of the ‘red wave’ before the 2026 midterm elections.

For the FOMC, this fiscal policy mix poses something of a conundrum, and creates significantly greater 2-sided monetary policy risks than have been present for much of the last 12-18 months.

2025 Outlook: USA – Resilient Growth Amid Rising Uncertainty_4

During 2024, even though the first fed funds rate cut did not come until September, it’s been clear that the ‘Fed put’ is well and truly alive once again. On numerous occasions, Chair Powell, and other Committee members, have noted that now sufficient confidence in inflation returning to the 2% target has been obtained, focus has shifted to the other side of the dual mandate, and to preventing further labour market weakness. As such, there has been a near-constant dovish risk embedded in the policy outlook.

While that dovish risk remains, a hawkish risk is likely to be introduced come 2025, owing to the aforementioned fiscal policies from the Trump Administration. Were tariffs, or immigration reforms, a fiscal sugar rush, or a combination of all three to cause a resurgence in price pressures, a policy response would likely follow.

Hence, while the base case remains that the FOMC will deliver a 25bp cut at each meeting until we return to neutral next summer, there are now 2 other scenarios that deserve due consideration. Were labour market conditions to soften, likely meaning unemployment rising north of the 4.4% end-25 median SEP forecast, the prospect of another ‘jumbo’ 50bp cut comes back onto the table. On the other hand, were disinflationary progress to stall, Powell & Co are likely to pause the process of policy normalisation, ‘skipping’ a meeting if necessary.

One must also consider the balance sheet. Though the pace of QT was more than halved in 2024, to just $25bln in Treasury securities per month, the continued process of balance sheet run-off remains somewhat at odds with the delivery of cuts to the fed funds rate. Effectively, policy is being loosened via interest rates, and tightened via the balance sheet. Hence, it seems likely that the QT process will be drawn to a close towards the end of the first quarter, especially as usage of the NY Fed’s overnight reverse repo facility continues to dwindle, implying an increasing scarcity in bank reserves.

2025 Outlook: USA – Resilient Growth Amid Rising Uncertainty_5

On the whole, despite greater inflation risks, 2025 is likely to see US economic growth once more outperform that of developed market peers. This, in turn, should see the USD remain firm against its G10 counterparts, as the focus of FX participants remains on ‘buying growth’, and as the greenback continues to inhabit the left hand side of the ‘dollar smile’. Of course, a surprising pick-up in RoW growth is the principal risk to this view, though risks to the outlook remain tilted firmly to the downside in both the eurozone, and China.

For equities, the path of least resistance should continue to lead to the upside, with resilient economic growth likely leading to another year of solid corporate earnings growth. That said, the forceful support provided in 2024 via the flexible ‘Fed put’ is likely to be somewhat reduced over the next 12 months, though this shouldn’t be too steep a hurdle for participants to overcome, with another year of gains set to pan out.

In the Treasury complex, finally, 2025 is likely to see a bull steepening of the curve. Such a move will come as the front-end rallies amid continued Fed policy normalisation, while the long-end seems set to underperform as growth expectations continue to re-rate higher, and as said cuts are delivered with inflation both above target, and amid continued upside risks to prices. One must also consider the potential for greater issuance through 2025, amid anticipated fiscal largesse, though the end of QT will clearly lift some of the burden here.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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JPMorgan

Economic

Like the broader economy, 2025 should be a year of normalization in alternatives. New norms are taking hold; the democratization of alternatives means they should play a key role in portfolio construction for both institutions and individuals, while emerging global themes and structurally higher interest rates could reshape asset demand. Moreover, easier monetary policy should allow activity in the most distorted markets to gradually normalize.

As the Federal Reserve cuts rates, exit activity in private equity could improve. Green shoots are apparent with exit values up ~51% y/y through 3Q245, although this is due to sellers bringing their highest quality assets to market. On a count basis, exits have only modestly recovered. Still, lower rates and better access to debt financing should help buyers and sellers find a better balance. Moreover, a more business-friendly regulatory backdrop under the incoming administration should fuel a continued recovery in exits via M&A. As lower quality deals come to market, however, valuations may come under pressure, benefiting new fund vintages but creating challenges for legacy assets. With rates unlikely to return to 0%, we would favor small-to middle-market companies given their lower dependence on leverage for returns, while secondaries remain an attractive way to gain instant exposure to mature assets.

Dynamics in commercial real estate are improving but unevenly. Valuations across most sectors are stabilizing (Exhibit 1) and may continue to as monetary policy loosens. Fundamentally, office remains challenged while industrials and multifamily look attractive, although there are regional divergences. Nevertheless, managers with liquidity can seek quality assets at attractive prices as valuations turn the corner. Those well-positioned for shifting demand in a post-pandemic world, like data centers or logistics properties, are especially compelling. Moreover, opportunistic investors may look to deploy capital as assets are brought to market by existing owners reluctant to refinance at higher rates. All that said, the outlook for real estate is murkier after the election, and it remains unclear whether a more favorable regulatory backdrop can offset the impact of persistently higher mortgage rates.

Alternatives: Stabilizing in A Shifting World_1

Unlike real estate, private credit has yet to see a cyclical correction. Defaults have trended higher in recent quarters but remain low, although elevated amend-and-extend activity points to a building credit cycle (Exhibit 2). Moreover, increased bank lending, which could be further boosted by deregulation in the banking industry, could force direct lenders to focus on lower quality borrowers, pressuring default rates higher. That said, while returns may retreat alongside policy rates, investors searching for enhanced yields should continue to find them in private credit.

As short-term interest rates settle at more normal elevated levels and as policy uncertainty increases, volatility across financial markets could remain elevated. Both dynamics should benefit hedge funds, which can provide diversification and the potential for enhanced returns. Meanwhile, investments in infrastructure and transportation can provide stability via steady income. Even as we usher in a new administration and policies, these assets should continue to benefit from long-term secular tailwinds such as supply chain shifts, AI infrastructure build-out and the energy transition (particularly increased electricity consumption).

Given rich public market valuations, lower bond yields and positive stock/bond correlation, investors should leverage alternatives to enhance portfolio return, income and diversification. Importantly, “alternatives” is one word used to describe asset classes with a variety of different characteristics. They can diversify not only public market exposure, but among themselves as well. Alternatives: Stabilizing in A Shifting World_2

Alternatives: Stabilizing in A Shifting World_2

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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JanusHenderson

Economic

The final quarter of the year is the busiest season for investors when it comes to fundraising and charitable giving. Successful philanthropy depends entirely on the goal or goals an investor is trying to achieve, whether they’re social goals, wealth transfer goals, personal goals, or tax deductibility.

In this article – the first in a series on philanthropic giving – we discuss the various types of charitable vehicles that may be used to maximize philanthropic success.

While this educational piece is not intended to provide tax or legal advice, it can help investors better prepare for the wealth transfer issues and decisions commonly faced by high-net-worth and ultra-high-net-worth families.

Last year, total estimated charitable giving in the U.S. topped $557 billion. Nonprofits generate the majority of donations from four giving sources: lifetime gifts from individuals, bequests from individuals in wills and trusts, gifts from charitable foundations, and gifts from corporations. Although the largest contribution comes from individual lifetime gifts (67% of total contributions), the most successful nonprofits draw from each of these sources for the most stable year-to-year funding.

Before we go into the strategic aspects of philanthropy, I thought it would be helpful to define some of the commonly used terms in the world of charitable giving – specifically, the different terms for charitable organizations that are often used interchangeably but in fact have different definitions.

Nonprofit: An organization established to serve the public good, such as feeding the hungry or providing disaster relief. Nonprofits are not subject to federal income tax.

Charity: A type of nonprofit organization with a focus on providing aid to those in need. All charities are nonprofits, but not all nonprofits are charities. Charities are not subject to federal income tax, and donations are tax-deductible.

Not-for-profit: An organization established to serve the interests of the organization’s own shareholders or members, such as a sports club or trade association. Essentially, a not-for-profit is a nonprofit that is not a charity. These entities are not subject to income tax, but donations are not tax-deductible.

501(c)(3) Organizations: These are essentially the same as charities. 501(c)(3) is the section of the Internal Revenue Code (IRC) that allows exemption of an organization from federal income taxes and the deductibility of donations. Note that the IRC grants a federal tax exemption to 32 different types of nonprofit organizations (see IRS publication 557), but only gifts to 501(c)(3) organizations provide tax deductibility of donors’ gifts.

These differences are important to understand because, while most nonprofits are tax-exempt, only charities that meet specific requirements set out by the IRC can offer donors the ability to deduct contributions from income. That is why it’s critical to confirm the recipient organization’s standing regarding tax deductibility of donations. Donors looking to achieve a tax deduction should first confirm the ability of the taxpayer to itemize deductions, and second, confirm the tax-exempt status of the recipient. This information can be found through the Internal Revenue Services’ exempt organization search function, at IRS.gov. Next, let’s look at the “why” behind charitable giving and how it is often combined with other tax and wealth transfer objectives. Social goals, wealth transfer goals, personal goals, and tax deductibility all factor into the final selection of the gifting tool used for the donation. Clarifying the investor’s true motivators is an essential step in successful charitable giving.

Philanthropic investors should consider the following:

1. What social goals am I trying to achieve by making a gift?

2. What is my overall estate plan, and how does this charitable gift further my wealth transfer goals?

3. How important are tax benefits to me? What about income tax, gift, and estate tax deductibility?

4. What personal benefits am I trying to achieve? (i.e., personal satisfaction/appreciation, an initial approach to family governance, qualification for a premium or benefit in return for my contribution).

Finally, let’s explore several techniques used for charitable giving and the most common reasons for their use.

Direct cash donations: Provides maximum value and immediate liquidity for the charity. Often the easiest but not the most tax-efficient of gifting techniques.

Donations of appreciated assets held one year or less: Deduction allowed for basis or acquisition value of asset. No recognition of gain, but no deduction for that gain.

Donations of appreciated assets held more than one year: Deduction for current value of asset. No recognition of gain and therefore no tax on that gain (win, win).

Donations of assets that have unrealized capital losses (worth less now than when acquired): It is typically best to sell the asset, realize the deductible loss, and then contribute the sales proceeds.

Gifts “with benefits”: For donors who wish to receive a premium, access, or naming rights on a building or program. This can help accomplish personal goals but may reduce deductibility.

Qualified Charitable Distributions (QCDs): Properly orchestrated direct distributions from IRAs satisfy required minimum distribution limits and shield QCDs from income. QCD contributions are allowed up to $105,000 in 2024 and are indexed for inflation thereafter. QCDs are used when required minimum distributions are not needed/wanted for personal use and the client is charitably inclined.

Charitable Gift Annuities: The recipient charity receives a donation and in return agrees to provide a series of payments back to the donor. Frequently, the charity uses a portion of the gift to purchase a commercial annuity to provide the series of payments. Charitable gift annuities are typically used to ensure lifetime cash flow to the donor and may also reduce the deductibility of the contribution.

Charitable Remainder Trusts (CRTs): A CRT is similar to a charitable annuity, except the recipient of the donation is an irrevocable trust. The terms of the trust provide an income stream of payments to the donor for a number of years (not to exceed 20) or for the life of the donor (i.e., the “lead beneficiary”). At the end of the payment term, the remaining trust assets go to charity (i.e., the “remainder beneficiary”).

CRTs are commonly used to achieve income tax benefits for clients who are charitably inclined, have highly appreciated assets, would like to sell to diversify and/or create liquidity, and wish to achieve income tax deferral on the gain. Property with unrealized capital gains is contributed to the trust. The trustee then sells the property and invests the proceeds. Because the trust is irrevocable and the remainder beneficiary is tax exempt, no immediate income tax liability results from the sale, although each payment from the trust to the donor carries an obligation to pay income tax on the amount of the distribution. Thus, a CRT is a charitable contribution that comes with income tax benefits.

Charitable Lead Trusts (CLTs): A CLT is best described as the mirror image of a CRT. CLTs are irrevocable trusts whose terms provide an income stream of payments to a charity (i.e., the “lead beneficiary”) for any number of years. At the end of the payment term, the remaining trust assets go to the individual(s) designated in the trust (i.e., the “remainder beneficiaries). CLTs are used to delay and decrease the value (and gift tax) of the gift to the individual remainder beneficiaries. CLTs are frequently used to accomplish charitable goals while potentially transferring appreciating assets to subsequent generations. Thus, whereas a CRT offers income tax benefits, a CLT is a charitable contribution that comes with gift tax benefits.

Donor Advised Funds (DAFs): DAFs are charitable accounts funded by individual donors but maintained and operated by a charity. Once the donor makes the contribution, the sponsoring charity has total control over the funds. The charity is responsible for maintaining the account, investing account contributions, and distributing the account funds with the advice of the donor. Distributions are made whenever the charity and the donor direct. The law currently does not require DAF funds to be deployed. DAFs are treated as public charities for tax-deduction purposes; however, DAFs are not a qualified recipient of a QCD.

Private Foundations (PFs): Entities established by an individual, family, or corporation to support charitable activities are treated for income tax purposes as private foundations. PFs can be organized as either a corporation or a trust. They are typically used to make grants to other charitable organizations (rather than directly operate the social programs themselves).

There are many restrictions imposed on PFs, including restrictions on self-dealing and annual distribution requirements. PFs also pay tax on net investment income earned on retained assets. Contributions to PFs may provide some tax deductibility, but it is less deductible than gifts to public charities. However, PFs allow donor control of the investment of donated assets (with some limitations) and allow the donor to control the management and distribution of fund assets (with some limitations). PFs often employ and pay family members to administer the foundation.

Investors clearly have many choices when making charitable gifts, and the list of techniques above is by no means exhaustive. Clarifying and prioritizing a client’s true goals is an essential step in successful charitable giving. Additionally, working with a client’s attorney and tax professional will greatly increase the chances for success.

To stay updated on all economic events of today, please check out our Economic calendar

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CEPR

Economic

Industrial policies have experienced a resurgence in recent years, including in emerging markets, as governments seek to reshape their economies and assert greater control over industrial sectors. This trend is likely driven by political economy factors, such as a desire for a more active state, and in response to foreign governments supporting their own domestic industries. This first in a series of three columns expands the available cross-country data on industrial policies and documents key patterns in how these policies are implemented, particularly in economies with lower administrative and fiscal capacity.

Industrial policies – policies to change the sector composition of production in an economy – have seen a resurgence in recent years. While their track record has been mixed (Hasanov and Cherif 2019, Kalouptsidi et al. 2019, Juhász et al. 2023, Barwicket al. 2024, Millot and Rawdanowicz 2024), their growing popularity may reflect domestic political economy considerations: a desire for the state to play a larger role in the economy (Kóczán and Plekhanov 2024) and voters’ preference for subsidies over taxes as the costs of the former are less salient (EBRD 2024a). Industrial policies may also appear more attractive when other countries are supporting their own industries, especially in the presence of increasing geopolitical fragmentation.

In recent research (EBRD 2024b, Kóczán et al. forthcoming), we build on the database of Juhász et al. (2023) using large language model (LLM) processing to document recent trends in industrial policies, in particular in emerging markets. We document four key stylised facts.

The use of industrial policies is on the rise, including in economies with less administrative and fiscal capacity

The use of industrial policies is on the rise in advanced economies and in other emerging markets, with increases in both the number of new policies announced in a given year and the number of policies in place at any given point in time (see Figure 1). The proportion of exports and imports covered by industrial policies has also been rising. Our results suggest that while industrial policies are more commonly seen in higher-income economies, they have been increasingly deployed in economies with lower levels of administrative and fiscal capacity.

The Visible Hand of the State: Industrial Policies in Emerging Markets_1

Economies with lower administrative and fiscal capacity are more likely to rely on distortive instruments

The instruments deployed to pursue industrial policies differ vastly. To a large extent, the choice of policy instrument is dictated by the sector, the objective of the policy and the structure of the market. Globally, grants (supporting innovation or IT start-ups, for example), export finance, import tariffs, and loans and loan guarantees provided by the state (often on concessional terms) are the most common instruments, accounting for 67% of industrial policies. Other commonly used instruments include public procurement requirements favouring certain producers, incentives for localising value added in production chains, financial assistance abroad and production subsidies.

We further find that while distortive instruments, such as import/export bans, quotas and licensing requirements are, on average, used relatively infrequently, they are more common in economies with lower levels of administrative and fiscal capacity (see Figure 2, which plots instruments against the average administrative capacity of the economies that implement them on the horizontal axis and the average capacity to raise fiscal revenue on the vertical axis).

In contrast, instruments such as trade finance, incentives to localise value added, and localisation requirements in public procurement are associated with relatively high levels of administrative capacity. Accordingly, they are more common in richer economies.

The Visible Hand of the State: Industrial Policies in Emerging Markets_2

Most industrial policies discriminate against foreign interests and firm-specific policies are common

While competitive elements can help minimise distortions associated with ‘picking winners’, recent industrial policies, both in advanced economies and in emerging markets, have predominantly discriminated against foreign interests (for instance, by establishing import barriers or subsidising domestic producers; see also Evenett et al. 2024).

Industrial policies that are firm-specific are also common (see Figure 3). Over 80% of industrial policies in Canada and the US target specific firms (through export-import loans, for instance). China stands out as having a high percentage of firm-specific policies for its level of development, with its policies typically targeting large (often state owned) enterprises in the manufacturing sector. In poorer countries, the share of firm-specific policies tends to be lower.

The Visible Hand of the State: Industrial Policies in Emerging Markets_3

Sunset clauses have become more widespread

Subsidies given to specific firms or narrowly defined industries can result in ‘addiction’ and calls for policies to be extended indefinitely, regardless of their benefits. As a result, industrial policies tend to be easier to introduce than abandon, with infant industry policies often continued well beyond those industries’ childhood years. Our findings suggest that the incorporation of sunset clauses (automatic end dates) has become more common in recent years. This development, which has coincided with the rise in more addictive instruments such as subsidies, is welcome and may, to some extent, indicate that countries are learning from decades of past experience with industrial policies. Nonetheless, policies with sunset clauses remain a minority.

Policy implications

Past experience with industrial policies offers several lessons. First, policies should incorporate competitive pressures and market-based tests, such as outward orientation and incentives for knowledge transfer. Evaluation mechanisms must be seen as an ongoing learning process. Including sunset clauses from the outset can help prevent policy ‘addiction’ and make it easier to phase out support measures when they are no longer needed. Finally, given the critical importance of effective implementation, industrial policies should be paired with continuous investment in administrative capacity and bureaucratic quality.

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Economic

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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The Visible Hand of the State: Industrial Policies in Emerging Markets

The use of industrial policies is on the rise, including in economies with less administrative and fiscal capacity

Economies with lower administrative and fiscal capacity are more likely to rely on distortive instruments

Most industrial policies discriminate against foreign interests and firm-specific policies are common

Sunset clauses have become more widespread

Policy implications

Trumponomics and European Real Estate

Risk Disclosure