Just in:
2024 Lok Sabha Elections Will Be The Costliest One Till Now In The Whole World // US reiterates concern over Kejriwal arrest, Cong accounts // Sharjah Chamber Breaks Ground on Final Expansion with New HQ Pact // Sunshine’s Debut Features Leave Tech World Scratching Its Head // Experience Ultimate Shopping Freedom at 4.4 Shopee Spree: Don’t Worry, Shop Shopee! // Emirati Aid Reaches Ukraine as Food Shortages Bite // No running of govt from jail, says Delhi Lt Governor // Universal Language for Healthcare: General Authority Embraces Global Coding System // Saudi Arabia Unveils Green Financing Tool to Achieve Net-Zero Goals // Andertoons by Mark Anderson for Thu, 28 Mar 2024 // Ajman Celebrates Conclusion of Ramadan Activities with Grand Ceremony // Ingdan Announces 2023 Annual Results // New Nylon Constant Torque Hinge From Southco Provides Position Control In A Compact Package // Melco Style Presents “SANRIO CHARACTERS STUDIO CITY CARNIVAL” – Explore a SANRIO World of Unlimited Love and Cuteness // Samsung Partners National Heritage Board to Bring a Slice of Singapore’s Cultural Heritage to Samsung The Frame TV // U.S. Compliance Takes Center Stage at OKX Following Industry Jitters // First-Ever Fortune Innovation Forum Draws Top Global Leaders to Hong Kong, Promoting Agendas On Collective Cross-Sector Advancement // Digital Hub Unveiled: Xposure Launches Platform for Global Photography Community // Hope for Respite as UAE Endorses UN Plea for Gaza Truce // Andertoons by Mark Anderson for Fri, 29 Mar 2024 //
HomeChannelsBusinessIn wake of Trump win, focus may drift back to Fed and inflation

In wake of Trump win, focus may drift back to Fed and inflation

1478926055

By Sumanta Dey
| BENGALURU

ADVERTISEMENT

BENGALURU After Donald Trump’s unexpected victory in the U.S. presidential election, investors may refocus in the coming week on the health of the world economy and any signs that years of rock-bottom interest rates and fiscal austerity are coming to an end.

Trump’s victory poses a major challenge to the conventional wisdom on the global economy, which for years has relied on brisker cross-border trade and migration flows for growth.

Apart from a nearly across-the-board rise in sovereign bond yields, however, the markets have so far mostly shrugged off the election result – despite previous fears of a meltdown in the event of victory for Trump, who espoused fiercely protectionist positions on trade in his campaign.

ADVERTISEMENT

Even the long-held view that the Federal Reserve will raise rates next month, a year after its initial step in that direction, hasn’t budged at all. Fed Chair Janet Yellen’s testimony to Congress on Thursday may set the stage for a year-end hike, despite the mild tightening in financial conditions in the past week.

Everything is up for reassessment.

“It will take time to gauge the global economic consequences of Donald Trump’s surprise victory,” JP Morgan’s chief global economist Bruce Kasman wrote in a note.

“Forthcoming policy changes are likely to generate growth cross-currents, but they should reinforce the tilt toward global reflation.” Trump’s proposals represent both a negative supply shock from curbs on trade and immigration as well as a positive demand shock from new fiscal spending, he added.

With the U.S. economy close to full employment – the jobless rate was 4.9 percent in October – Trump’s election promise to cut taxes and upgrade the country’s aging infrastructure could provide a big boost to both growth and inflation.

Official U.S. data on Thursday will likely show consumer price index inflation picked up slightly last month, up 0.4 percent on the month and 1.6 percent on the same month last year. Core inflation, which strips out food and energy, is expected to hit 2.2 percent.

That follows pre-election news of a pickup in average pay growth to 2.8 percent, the highest since June 2009. Retail sales data due out on Tuesday are expected to have lost a little steam last month.

INFLATION AHOY

Sovereign bond markets are already out of the blocks in pricing in a rise in inflation expectations in the United States followed by the rest of the world.

The 10-year U.S. yield US10YT=RR rose to 2.15 percent, almost 30 basis points above its levels around 1.86 percent just before the U.S. election on Tuesday. The surge has strengthened the dollar against the euro and yen, which would ultimately help raise import costs in the euro zone and Japan.

If inflation moves higher from here, supported by fiscal stimulus and rising energy prices, the current back-up in bond yields across the developed world is set to continue, possibly suggesting an end to a three-decade trend of falling yields.

It is still early days, however. Starting on Monday, it will become clearer how industrialized economies such as the euro zone, Germany, Italy, and Japan fared in the third quarter – before the U.S. political earthquake.

Reuters polls show growth largely held steady in the euro zone despite a slowdown in Germany, and picked up slightly in Japan. Inflation was probably 0.5 percent in October in the euro area, similar to a preliminary reading but above recent lows.

The gradual rise in inflation in recent months will be welcome news for the European Central Bank which, after printing more than a trillion euros since March 2015 and cutting deposit rates to -0.4 percent, is fast seen running out of policy tools.

The ECB’s Governing Council next meets on Dec. 8 to decide policy. Economists expect it to extend its asset purchase program beyond the planned end date of March 2017.

YELLEN’S FUTURE

A snap Reuters poll conducted in the 24 hours after the U.S. election result indicated no change at all in the expected future path for the policy rate.

A series of Fed policymakers are scheduled to speak in the coming week and are likely to reinforce the view that the fed funds rate will move up 25 basis points to a range of 0.50-0.75 at the Dec. 13-14 meeting.

Crucial too for the rate trajectory is the future of Janet Yellen, appointed by President Obama as Fed Chair. A Reuters poll a few days ago found a majority of economists expect Yellen to serve out the remainder of her term until early 2018 but don’t think she will be reappointed.

“What is relatively clear is that there will be conflicts between a Trump administration and Fed Chair Janet Yellen after Trump had severely attacked Yellen in his election campaign. The bridges between both of them appear to have been burnt,” Jorg Kramer, chief economist at Commerzbank, wrote to clients.

Britain’s Prime Minister Theresa May is scheduled to travel to Berlin on Nov. 18, a trip in which she possibly hopes to get preliminary talks underway that would help the UK smoothly navigate the process of leaving the European Union.

(Editing by Ross Finley and Hugh Lawson)

Reuters

ADVERTISEMENT

ADVERTISEMENT
Just in:
Emirati Aid Reaches Ukraine as Food Shortages Bite // Melco Style Presents “SANRIO CHARACTERS STUDIO CITY CARNIVAL” – Explore a SANRIO World of Unlimited Love and Cuteness // German Job Market Resilience Bodes Well for Economic Recovery // French Leaders Gather for Interfaith Iftar Dinner // Samsung Electronics Launches 2024 Neo QLED 8K, Neo QLED, and OLED Displays to Spark the AI Screen Era // Andertoons by Mark Anderson for Thu, 28 Mar 2024 // Sharjah Chamber Breaks Ground on Final Expansion with New HQ Pact // First-Ever Fortune Innovation Forum Draws Top Global Leaders to Hong Kong, Promoting Agendas On Collective Cross-Sector Advancement // No running of govt from jail, says Delhi Lt Governor // Saudi Arabia Unveils Green Financing Tool to Achieve Net-Zero Goals // Experience Ultimate Shopping Freedom at 4.4 Shopee Spree: Don’t Worry, Shop Shopee! // Following the Money Trail: US and UK Investigate $20 Billion in USDT Transfers Tied to Sanctioned Russian Exchange // Global Audience to Witness Thrill of Dubai World Cup // TUMI Hosts Global Launch Event in Singapore to Unveil Women’s Asra Collection and Announce Global Ambassador, Mun Ka Young // 2024 Lok Sabha Elections Will Be The Costliest One Till Now In The Whole World // Ingdan Announces 2023 Annual Results // CABSAT 2024 Ushers in 30 Years of Media Innovation // Ajman Celebrates Conclusion of Ramadan Activities with Grand Ceremony // U.S. Compliance Takes Center Stage at OKX Following Industry Jitters // Infineon and HD Korea Shipbuilding & Offshore Engineering jointly develop ship electrification technology //