Donald Trump declared in his acceptance speech of the
presidency that America would now focus on an economic plan that would induce
infrastructure spending to inadvertently create more American jobs: “we are
going to fix our inner cities, and rebuild our highways, bridges, tunnels,
airports, schools, hospitals. We’re going to rebuild our infrastructure, which
will become, by the way, second to none. And we will put millions of our people
to work as we rebuild it.”
It is likely that if Trump delivers on his promise that the
effects are not only going to be felt within US borders. Because the US economy
is the world’s largest, the US bond market is ultimately the reference point
for all other bonds around the world. This led analysts at M&G Investments
to contemplate whether his election victory sparked “the end of global
austerity” as investors bet on a long-lived surge in global inflation.
Right now, inflation is relatively at a minimum, sunk to
historic lows since the start of the recession almost a decade ago. Much of the
developed world is currently battling deflation – less money in circulation,
more purchasing power – so if a notable hike in inflation or reflation comes,
several markets around the world would be on a learning curve. Investors have
bet that the American fiscal stimulus will be recreated in European and Asian markets, therefore amplifying the universal effect.
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It
is believed that it was Trump’s acceptance speech that helped reassure
investors, encouraging hopes that he will moderate his more extreme positions
when actually in office. This was the final push, however capital economists
suspect the first factor that played was the Brexit incident, where the
majority of British voters called to leave the European Union. That initial
shock may have created better preparation for a surprise outcome and to quickly
re-position for a fast recovery.
