Independent Strategy

Trump l’Oeil

The reaction of financial markets to Trump’s election is explainable by expectations of tax cuts and rising fiscal spending. This reflation trade equally pushes bond yields higher. Interest-rate expectations will ultimately follow. That doesn’t change the plethora of risks that come with a populist leader. But it does mean that equity markets can do well in the short term, while higher bond yields will also place a bid under the US dollar. It remains bad news for emerging markets, which now face the dual headwinds of fears of trade tariffs and a generally colder US alongside rising commodity (input) prices and strengthening greenback.

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