Trump had the ability to pick-up the rust belt to clinch Presidential bid – Deutsche Bank

Research Team at Deutsche Bank, suggests that the Trump’s ability to pick-up the rust belt to clinch his Presidential bid, had its parallels in the Brexiteers successes in winning the UK’s rusted industrial north.

Key Quotes

“The question is not whether Trump can get a large fiscal stimulus through, but whether a Republican Congress can ‘right size’ the package so as to not undermine fiscal sustainability too much. What would ‘right size’ look like? Something akin to say a 1% of GDP per annum, and, a 2 or 3% of GDP cumulative stimulus, would be a macro game changer. If it comes with supply-side measures inclusive of a large corporate tax cut, the market will likely set aside their considerable concerns about debt sustainability and give the policies the benefit of the doubt – albeit with the experience of Reagan’s second term, that when the fiscal stimulus runs dry, so does the above trend growth. If this is the predominant view of Trump’s economic platform then the market looks to be grossly mispricing Fed policy, with its current 46% probability of a December rate hike, and as important only 2 in 3 chance of another 25bp hike in 2017.”

“The natural pushback to this view is that Trump’s trade policy will roil markets, and the risk-off tightening in financial conditions will undermine all the favorable s/t growth effects of a fiscal stimulus. If US equities can find support near the S&P June 1991 low, that should would be one key sign that we are building towards a refocus on a large fiscal stimulus and a Reagan like 1983 – 84 response, which is USD stronger versus EM and DM.”