US Equity Dynamics, Yield Curve and Exchange Rate at Variance With Trumponomics
The dynamics driving higher US equity prices in 2017 have been at variance with the predictions of strategists in the aftermath of President Trump’s election victory, particularly the strength of the information technology sector.
Tougher and riskier times are ahead for US equities as the Fed continues to raise its policy rate during an ever ageing economic expansion.
Continued flattening of the US Treasury yield curve could thwart the Fed’s plans to raise the federal funds rate funds rate in 2018 due to risks of inadvertently engineering inversion.
Future developments in inflationary expectations could impact monetary policy by forcing the Fed to convey to financial markets whether the 2% inflation target effectively represents a ceiling.
Although the incoming Fed Chairman is a Republican, there still remains the distinct possibility that the Trump Administration will lean on the US central bank to keep policy settings easy.
Without easier US fiscal policy, courtesy of tax reform, the US dollar will not necessarily be a one-way bet and will be hostage to other factors, such as inflationary expectations and monetary policy developments outside of the US.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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