What's the global economy look like from your lens right now?
I think the economic setup is pretty constructive, especially in the U.S. But broadly, I think it's relatively constructive. You've got a confluence of lots of stimulative fiscal policy in developed economies. You have a general deregulatory trend in tone, both in the U.S. and Europe, and particularly in the U.S. after a very difficult regulatory environment under the Biden administration. I think the Trump administration is moving quickly to rebalance the regulatory burden. And I think there's a desire in Europe to also improve the regulatory situation. That's quite stimulative. Massive AI investment, infrastructure investment around the world, which is also quite stimulative. We've been in a monetary easing cycle, which also creates tailwinds. And we have midterm elections coming up in the U.S., where you certainly could see specific policy actions, particularly around affordability, that also could be stimulative in some way. So economically, things set up nicely, but a little bit the same as last year. There's a lot going on geopolitically. There's a lot going on in the world. And as that stuff plays out, it can lead to speed bumps or distractions. We saw one in April with the rollout of the trade policy, which kind of slowed the economic momentum down. We then saw a pivot. We got through that. Obviously, there's a lot of noise at the moment when you talk of geopolitics, you talk kind of global economic order. And as people invest, people move forward when they're confident. The noise sometimes can sap confidence. I think at the moment, generally things look relatively green, but that doesn't mean there aren't issues that could pop up.
Well, you just came back from Davos and the ruptures, the cross-Atlantic relationship seems to be frayed at the edges, if not at the core. How does that disrupt what's been a long-time alliance between the EU and the United States?
Well, I think the word frayed is a much better word than ruptured. I don't think there are ruptures. I choose my words. I think there is a lot of noise. And that noise frays trust. Trust is built over time. Trust and important relationships around the world, between nations, is really built through sacrifice over time. And when there is noise, it can fray those relationships. I think the fundamental relationships are still strong. But I certainly, in Davos, sensed a level of frustration around some of the policy debate. But I think that stuff will get passed. One of the things that I'm spending a lot of time doing is thinking about what's noise and what's the substantive issue. And I do think we're set in a place where we actually can make progress on a bunch of the substantive issues. But we certainly have an administration in the U.S. that's shaking things up and that sometimes leads to the fraying or concern and a bunch of noise.
How's your relationship with the White House right now?
Our relationship with the administration is very, very good. One of the things that I've said publicly, that I really appreciate, this administration is open for business and it's engaged with business. In the past administration, we had trouble engaging the administration. This administration takes your calls. They'll listen to your point of view. They may not agree with everything. We push back privately and tell them we don't agree, but they are open for business and engaged in a very constructive way. And I think that's the way the system is supposed to work.
Not to dwell on it, but I'll just ask one more question on that. Is it conducive to having good policy and the relationships when he's suing JPMorgan for allegations of debanking, he's sort of sidelined Brian Moynihan of Bank of America, he called you out in August for some things, saying you should go back to... I like DJing. I know he was hard on Jan Hatzius, your chief economist, for his take on tariffs back in August. But Jan, in his research, has also sort of changed his tune to saying the pass-through on tariffs into the economy has pretty much already peaked. Is it taking a lot to regain the trust of the White House?
I don't look at it that way. I think we have a relationship with the administration. It's a good relationship. We like some of the things they're doing. When we don't like them, we voice our opinion. They like things that we do. When they don't like them, they voice their opinion. Sometimes I wish it wasn't in the media and the noise, but that just goes with the territory. We're focused on how do we grow? How does the economy grow? How do we contribute to helping the economy grow? To supporting our clients who are investing in America, investing in the global economy, and trying to grow? And I would say, this administration is incredibly constructive on that and on that stuff. And again, ignore the noise, focus on the substance. We're focused on the substance. And you were just reiterating a bunch of noise.
Well, okay, let's talk about some of the numbers that you had, because in the fourth quarter, blowing past expectations in equity trading revenue, what's the market look like with a number of big-ticket IPOs coming, whether it's SpaceX or others. What's your outlook on the environment?
The environment is very constructive for our business, particularly our banking and markets business. We highlighted in our fourth quarter earnings, our year-end earnings, that our backlog was again at another significantly high level and it moved quite positively. I think it's going to be a very constructive year for M&A activity. Could be one of the best years, if not the best year ever for M&A activity. I think CEOs feel unleashed to really invest, drive growth in their businesses. It's a better regulatory environment. They're asking big questions about what the art of the possible is. That's very different from where we were four years ago, where the answer to any question was no. Now, the answer to any question is yes, maybe. And so CEOs are looking forward. It's a very, very constructive environment for our business. So we expect a strong M&A year globally. We expect a strong capital markets year globally. And we think the firm's very, very well positioned to capitalize, too.
Two Fed cuts you're expecting. And what about Fed independence? Are you worried about bonds here?
Yeah, you know Jon's position on that. I think a lot of that will depend on the trajectory of the economy. I think we could see upside to both nominal and real growth this year. That would have an impact on whether or not the trajectory of monetary policy cuts continued.
20% chance of recession, he said, down from 30%. Do you see any risk of...?
I'll let Jon be the speculator, but at 20%, the base case for a recession is one out of seven, okay. Which is a little bit lower than 20%. I think the chance of a recession this year is low in the U.S., and I don't think you'd see one unless there was some exogenous event that materially changed the current sentiment. And I don't think that's a likely outcome.
So you're seeing a constructive environment, are you seeing a necessary broadening out of the markets beyond Mag 7? And there's also the risk, of course, of a potential bubble.
Well, we've seen a big move in markets away from Mag 7. I think there's been broader participation. I think companies are investing. I think there's a big view that AI productivity is going to move into the enterprise and that creates flexibility for a broader array of companies to invest. And so I think there's a broader level of participation and things are set up quite constructively for the next few years. This AI productivity gain in enterprise is a real thing. It's going to take a while for that to be implemented, but we're quite constructive on that. The tailwinds that that creates for economic growth and for investment.
Well, that's a good pivot to Hong Kong because the stock market here are regaining the IPO crown last year and essentially on the back of all these IPOs in the tech sector, a lot of them really the big gainers have been the infrastructure and not necessarily the applications or the large language models. They've been essentially the hardware players, the chips and the like. Do you see a sustainability of this pipeline from China of AI, if the environment continues to be constructive the way it is now?
Yes, I think it'll be a very good year for IPOs over here, too. I think there's a lot of pent-up capital markets activity because we really, coming out of the pandemic, we kind of shut down capital markets for a period of time. You got a more conducive regulatory environment. You've got a good détente in U.S.-China with a constructive setup in 2024 for more constructive dialogue. I think all that's conducive for more IPO activity here in Hong Kong. I think you see more activity in the U.S. and Europe. So it's a pretty constructive setup. Now, of course, if there was a big exogenous event, it could slow it down. But I just don't think that's the base case. But that doesn't mean we won't have some speed bumps along the way this year.
