Forget bitcoin, the real bubble is global equities - AmpGFX

There is something of a disconnect between US equities, firing up on tax reform, and the USD and US bond yields struggling to gain traction, according to Greg Gibbs, Analyst at Amplifying Global FX Capital Pvt Ltd.

Key Quotes

“Some of the recent weakness in the USD appears to be related to political uncertainty, embodied in a sinking Trump approval rating, despite tax reform.  Trump's net approval rating hit a new low last week, but the latest polls hint at an improvement. Notwithstanding tax reform and risk that the US economy overheats in 2017, the market has more bearish calls for the USD next year. These calls are not unreasonable, but the market may be relying too much on convenient explanations for a weaker USD in 2017 and assuming these will hold up in 2018.”

“We see more to the Trump tax reform bill than many left-wing commentators that are hoping Trump will fail. The 21% corporate tax rate and nationalist economic policies have other government’s worried and may drive companies to book more revenue in the USA, even before you add in a potential real boost to growth. This may make the tax policy look much better than modest market expectations. The taper in global QE is too slow as we head into 2018, and may pump more air into frothy asset markets, creating a more dangerous bubble than bitcoin (which we see as still under-valued as it grows into a store of value asset).”

“As we head into 2018, we suggest taking FX forecasts with a grain of salt. In this environment, it may pay to adopt a patient and contrary stance, waiting for fleeting trends to crack and the fickle market to switch focus to the next spurious correlation.  Beware unforeseen strength in the US economy related to the massive corporate tax cut and upside risk to inflation.  This may result in surprising strength in the USD in 2018 and a correction on global asset markets.”