Details of the Trump administration are slowly starting to emerge.
Trump’s first signal was about fiscal stimulus through infrastructure spending that has clear implications for growth, for some sectors, and it has clear implications for inflation.
So, the equity (the Dow industrial average climbed to a new record at 18807.88 on Friday) and the bond markets saw the yield of the 10-year U.S. Treasury moving by more than 21 percent, which was the largest weekly move in more than 50 years, have reacted accordingly.
By the way, and using Bloomberg's Global Bond index, more than $1 trillion has been lost (higher yields = lower prices) since the U.S. election.
Besides all that, over the weekend we have had some additional signals from the President elect.
Trump has reiterated his plan to build a wall along the Mexican border, although acknowledged that some fencing may be a nice alternative in some places. To the extent that this is considered an extension of the infrastructure plan, the consequences are the same.
Trump has also appointed Reince Preibus (Chairman of the Republican National Committee) as his chief of staff and Stephen Bannon (Executive chairman of Breitbart News and who became chief executive officer of the 2016 presidential campaign in August this year) as his chief strategist.
This could be seen as a balance between the Washington consensus (Preibus) and the continuation of candidate Trump (Bannon). The position of Bannon may temper some of the initial enthusiasm in financial markets that Trump’s fiscal policy program initiated. He has also made clear that he intends to deport undocumented workers with criminal records suggesting, all this perhaps not very scientifically, around 3 million people would be targeted.
Leaving aside the practicalities of implementation that would be somewhat disruptive to the U.S. labor market, although it should be noted that a criminal conviction substantially lessens the prospects of legitimate employment in the United States. There is also the consideration of whether families move with those who are deported.
Finally, the first foreign politician Trump met with was Nigel Farage, actual leader (in an interim capacity) of the U.K. Independence Party (UKIP) and who, by the way, left the UK Conservative Party in 1992 after the U.K. signed the EU Maastricht Treaty.
Trump’s chief strategist Bannon has invited Marine Le Pen, president of the French National Front (FN), which is a national-conservative political party and that is at present one of the main political forces in France, to work with him.
These events perhaps signal Trump’s Presidency may have a different approach to working with the European Union, as neither Farage nor Le Pen are known for their enthusiasm for the EU.
As an investor, it might be not such a bad idea to keep these facts in mind when euro-related investments are under consideration in the near future, because trouble is brewing, unfortunately once again, in the Euro area.
The German led attempt to have an urgency meeting of the EU Foreign Ministers last night in Brussels was not crowned with success, as the British and the French signaled they had other plans for the weekend.
The EU Foreign Ministers do get together today to discuss defense issues and Turkey.
Elsewhere in Europe, Moldavia, which is not an EU member state but that has an association agreement with the EU and Bulgaria, which is a member State of the EU, have elected Presidents over the weekend seen as being more favorable to Russian interests.
Away from all the politics, Japanese GDP growth came in at 2.2 percent through the miracle of annualization that is not a comparable figure to for example European and U.S. data that are reported in pure year-on-year terms. However nominal GDP was less robust as the inflation measure used in the GDP calculation tended out to be negative when it was expected to be positive. The export sector was the driving force for the economy by and large.
Euro area industrial production for September was down 0.8 percent compared to the month before and up 1.2 percent year-on-year.
We do have Fed speak today from the John Williams, President of the San Francisco Fed, Jeffrey M. Lacker of the Richmond Fed and Robert S. Kaplan of the Dallas Fed after Fed Vice Chair Stanley Fischer again signaled the desire to raise rates in remarks given last Friday.
The question is, and this is important for all investors, whether the Fed can raise rates fast enough to counter the coming inflation in the United States.
Parallels to Reagan era may break down here because of the simple fact that Fed Chair Janet Yellen is no Paul Volcker, who was Fed Chair under Ronald Reagan, on this topic.
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