There are three aspects to the Trump victory that RMG believe are important and worth thinking about today:
- He is going to pursue a reflationary agenda. This, coupled with a short term tailwind for both growth and inflation, should see longer dated bond yields rising. All other things being equal, this should help the US Dollar.
- He could well legislate HIA2 in order to repatriate tax revenue from abroad, which would be very supportive for the Dollar.
- He is likely to be more insular than globalist and, although this is not great news economically, it is much worse news for the rest of the world, especially selected Emerging Markets namely those with current account deficits and those that are commodity based.
We also have another more global/structural thought prompted by the election win. We have been of the view that a “reset” is needed on many levels in markets and economies. We don’t expect Trump to be able to overcome all that is holding back the US economy, but political status quo was arguably part of the problem and Trump will provide change at least. Will this political change be good – only time will tell, but we think it might well be. Indeed, we can see now that both the UK and US have voted for change, and with the UK no longer looking so isolated, perhaps political change is the way forward.
The flip side of this thought is that the political status quo is not good, and Europe is desperate to maintain the status quo. We have been saying for a bit now that Sterling looks cheap compared to the Euro, and we are getting more comfortable with this view. Or put another way, we are warming to those currencies where political change is happening and the one place where the status quo is set in concrete is Europe.