Friday November 11, 2016 - 23:00:59 GMT
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Trump Turns Conventional Wisdom Turned on Its Head
John M. Bland, MBA
When markets closed Tuesday in North America traders were expecting an early evening with Hillary Clinton expected to be well on her way to the Presidency after polls closed in the Eastern time zone. Most of the states that were in play are in the East and Middle-West. Fairly early on it soon became evident that the vote was not coming in the way political pollsters had predicted. In the end, this was a historic Brexit-like event for the U.S., where populist sentiment unexpectedly overturned the political and media establishment. As in the U.K., pollsters had proved unable to capture the dissatisfaction of the vast majority of U.S. voters. While it was the Democrats who were the most impacted by this popular revolt, it was directed at establishment Republicans as well. My point is that while the Republicans came out on top, they were sent a message by voters as well. Voters are fed up with the political status quo. It now behooves ALL politicians who want to survive to end the gridlock in Washington and take immediate concrete actions to improve the lives of voters or they will also be shown the door.
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Initially the financial markets did not know what to do with the Trump victory because that possibility had seriously not been on anyone's radar. Initially Asia sold equities and the USD on a fear trade, but as Wednesday evolved, equity prices and higher bond yields surged higher as investors realized a Trump Presidency could represent a constructive sea-change for the U.S., and by extension, global economies. This change in thinking was due to anticipation of faster economic growth that would result from the new economic polices that Donald Trump had said he would implement. Faster growth in the U.S. would also be USD constructive. On Thursday, Asian and European stocks and bond yields advanced further in anticipation of a U.S. economic expansion. The U.S. economy traditionally has been the primary engine of global growth.
Markets are a discounting mechanism, they trade in anticipation of what they see is likely to come in the future. So they are trading now in anticipation of what they expect to be happening once the Trump administration already is in power, which will not be for a couple of months.
Markets have been turned upside down by the Trump victory and his unexpected control of the two Houses of Congress. I expect in the early days of his administration he should be able to get done what he needs to stimulate the economy. Furthermore, his opposition (in both parties) is in disarray and will predisposed to give him what he is asking for to save their political skins. This should lead to rising equities, rising interest rates and a higher USD.
As can be seen below, the week ahead will be very active with employment data from several key economies due. The major focus will be on how the New Trump administration unfolds.
WEEKLY HIGH IMPACT NEWS:
No Major Data
09:30 GB- CPI
10:00 DE- ZEW
10:00 EZ- GDP
13:30 US- Retail Sales
09:30 GB- Employment
13:30 US- PPI
14:15 US- Industrial Production
15:30 US- EIA Crude
00:30 AU- Employment
09:30 GB- Retail Sales
10:00 EZ final HICP
13:30 US- CPI
13:30 US- Housing Starts/Permits
13:30 US- Weekly Jobless
15:00 US- Yellen Testimony
13:30 CA- CPI
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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