Trump: Likely to focus on much needed fiscal policy stimulus for US - Rabobank

Bas van Geffen, Quantitative Analyst at Rabobank, suggests that the Trump wants to provide the US economy with a much needed fiscal policy stimulus.

Key Quotes

“Republican control of Congress should help the implementation of planned fiscal stimulus – both in terms of timeliness and the size of any potential measures – as compared to a situation where a divided government would have required Republicans and Democrats to broker a deal.

Still, the prospects of a Trump presidency has markets reducing their expectations of the Fed’s hiking path (with market implied probabilities for a December hike now at approximately 50%, down from 84% yesterday). Indeed, the possibility of a trade war in 2017 adds downward risks to US and global GDP growth from next year onwards.

Trump’s trade policies are likely to have a bigger market impact than his fiscal policies. If he decides to launch protectionist measures against China and Mexico, Inauguration Day could be the start of risk-off episodes in markets caused by trade conflicts. The markets will shift to a risk-on mode if the trade war game ends in a Reagan- or Bush-scenario. However, there is a high risk of recession if the game ends in a trade war, depressing stock prices and treasury yields for a sustained period. In this case, the fiscal stimulus could soften the recession somewhat.”