Friday, November 11, 2016

Trump Proclaims Hike in Infrastructure Spending, Investors Bet on Global Reflation

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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Wednesday, November 9, 2016

Wall Street Effects of Trump’s Presidential Victory

There are several economic impacts of the presidential win Donald Trump took home last night, and some are immediate! Investors are relocating money to where they believe will produce the higher return based on predicted upcoming policy changes. For example, it is noted that the election of Trump effectively marks the end to the gun control agenda pushed by Democrats over the course of the last few years (or at the very least, puts a pin in it). Thus, firearm manufacturer stocks plummeted overnight, causing Smith & Wesson’s shares to drop 10.21% and Sturm Ruger’s to drop 12.29%!

Text Box:  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.

Fitch, one of the Big Three credit rating agencies, released a report warning of the Trump Plan’s effect for America’s creditworthiness in the medium-term. An excerpt is quoted, “tax cuts would increase household disposable income, which could boost short-term growth when coupled with deregulation and higher public investment. But this would depend on how far such measures are offset by potential negative factors such as a hit to private investment from policy uncertainty, financial market developments (for example a rising dollar and falling equities), and adverse trade effects."

Fitch also forewarns suffering of US growth and rising prices if Trump were to pull out of NAFTA and impose new tariffs on Chinese imports.

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Wednesday, November 2, 2016

Will the Fed Hike Interest Rates this December?

This week, the Federal Reserve Board is to meet to go over interest rate policy and the current economic standing of the United States. It is not expected that interest rates will rise this session, due to the election and the Fed’s strategy to not step into that spotlight, however it won’t be a surprise if members of the Fed’s policy making Open Market Committee (FOMC) lock in a higher rate during it’s next meeting in December.

Those pushing for an increase in interest rates argue that because the economy is nearing its full employment capacity, further reductions in the unemployment rate will pressure wages to raise with the rates. This translates to higher inflation.

The opposing ARGUMENT sheds light on the fact that the percentage of prime age (25 – 54) workers who have jobs is still down almost 2.0% since the 2008 recession; even though the unemployment rate is low, it may not be accurate due to people giving up looking for work because hope of finding a job was lost.

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