While the probability of a Fed rate hike in December has now reached 100 percent, it’s interesting to see that the 2-year U.S. yields have jumped to their highest level since 2009 on what we could call Trumpflation bets, we still have no further news from President elect Trump on who will be the new Treasury Secretary as well as the new Secretary of State, which may have a bearing on international capital flows.
It could be helpful keeping in mind that the Middle East and Sovereign wealth funds hold over $3.2 trillion of assets globally and the choice of the Secretary of State could be an important signal in that regard.
Never forget, an investment return is only worth getting if one could be confident of getting one’s money back.
A senior Trump advisor has said that there is no rush to fill the appointments of the Secretary of State and the Treasury Secretary, but there is no doubt that this does add to the real uncertainty, which is not the same as the perception of uncertainty for financial markets.
The appointments made so far are the clearest signal that investors have as to how much of candidate Trump is likely to translate into President Trump.
In the absence of greater clarity, bonds and equities have been drifting somewhat.
What little markets know of future policy probabilities would appear to be in the price at which markets trade for the moment and therefore my personal preference on equities and bonds is trying to remain with both feet on the ground and stay away from any from hype.
Anyway, President elect Trump did provide us with a video statement on YouTube wherein he outlines his agenda for his first 100 days in office including a number of executive actions that will be taken on day 1 of his term in office and which are:
- On trade: President Trump is going to issue a notification of intent to withdraw from the Trans Pacific Partnership (TPP), which is a trade agreement among twelve of the Pacific Rim countries that notably does not include China and of which the finalized proposal was signed on February 4, 2016, and instead he will negotiate bilateral trade deals.
- On energy: He will cancel restrictions on the production of American energy.
- On regulations: He will formulate a rule that says that for any new regulation two old regulations must be eliminated.
- On national security: He will ask the Department of Defense and the Chairman of the Joint Chiefs of Staff to develop a comprehensive plan to protect America’s vital infrastructure from cyberattacks and all other forms of attacks.
- On immigration: He will direct the Department of Labor to investigate all abuses of visa programs.
- On ethics reform: He will impose a 5-year ban on executive officials becoming lobbyists after they leave the administration and a lifetime ban on executive officials lobbying on behalf of a foreign government.
Now, on the subject of future policy probabilities and that’s worth to take a look at, yesterday, the UK Prime Minister Mrs. May gave a speech promising “no cliff edge” on the subject of the UK’s exit from the EU.
Markets clutched to Prime Minister’s May statement of “no cliff edge” with both hands and held it tight to them. Sterling jumped on Mrs. May statement, but couldn’t hold its advance against the dollar.
This is an increasingly common reaction in a world of unprecedented populism. Anything that is familiar receives a disproportionate reaction from investors.
In fact, UK Prime Minister May cannot promise “no cliff edge” because it’s not her decision to make nor even the decision of the UK government as a whole. The decision on how precipitous the “cliff edge” of a UK exit turns out to be lies with all 28 members of the European Union and anyone of the 28 can veto any deal, which is an element that should not be overlooked.
There are noises in the EU that suggest that the deal will be more cliff-like than Prime Minister May seems to be implying.
Anyway, as an investor, it’s always wise not taking what you wish for as "reality" …
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.
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