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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