Markets appear to have settled in the belief that Trump will be positive for US businesses, says Instreet managing director George Lucas.
“Sectors such as construction and banks have done particularly well as investors expect the new president to deliver a surge in infrastructure spending and a lighter regulatory touch,” he says.
“The possible economic leg-up that the market believes Trump’s policies will deliver has also put a spark under the US Dollar.
“In turn, investors have fled government bonds on expectations the US Federal Reserve (Fed) may need to raise interest rates faster than expected to contain inflation.
“Chair of the Federal Reserve Janet Yellen backed this up last week when she said an increase in short-term interest rates could ‘become appropriate relatively soon’.
“We believe solid US data is also supporting the case for tighter monetary policy.
“Markets are now expecting a rate rise in December with the federal futures market implying a 95% probability of a 25 basis points hike at the FOMC meeting on 14th December.
“10-year US Treasury yields are at a 12 month high after climbing around 40 basis points since the election,” he said.
Commenting on the negative reaction to a Trump presidency in emerging markets Mr Lucas said he understands the reasons for the decline but does not necessarily agree with the sentiment.
“While the MSCI US Index has risen since the election, the MSCI Emerging Markets Index has fallen by around 4% in local currency terms.
“This implies two things.
“One, emerging market investors are exiting amid uncertainty about policymaking and a sell-off in US Treasuries.
“Second, investors in US shares have taken solace in the likelihood that Trump will loosen the public purse strings once he takes office in January.
“This could in part be driven by speculation that Trump’s policies will not benefit emerging markets. However, we at Instreet don’t necessarily agree with this view.
“China is already taking initiatives to protect trade in the region and the likely long-term outcome is for the Asia Pacific region to become less reliant on US trade.
“There’s likely to be a lot of talk and plenty of action over coming months and years as China seeks to expand its influence and presence by adopting more liberal trade initiatives as the US digests and deals with the Trump anti-trade rhetoric,” Mr Lucas said.
