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Wall St sleepwalking into Trump volatility surge

Our round-up of the week’s best comment and analysis from the Financial Times focuses on expectations of a Trump-presidency stimulus and the danger of complacency.

The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.

Wall Street might be too complacent about Donald Trump’s corporate tax stimulus and are not pricing in an upsurge in volatility, argues the FT’s John Authers.

While US stock market benchmarks have broken through fresh highs partly on expectation of positive boosts from Washington politics, “investors should assume that whatever tax package is coming will not be a straight giveaway.

“The chance of something Wall Street-unfriendly (at least in the short term) appears higher than record high share prices would suggest. It might just be the most dramatic tax reform in a generation, or it could just as easily be an attempt at government meddling in corporate decisions, disguised as a tax cut. Or it could be a disaster.

“The safest bet, not currently priced by the market, is higher volatility until politicians have thrashed out a tax plan.”

While there is rising hopes invested in a Trump-era infrastructure stimulus, says Western Asset’s Robert Amodeo, private sector financing will be key if any US projects are going to happen.

“Investors should be cautious, however: we should not anticipate a thunder clap moment when investment opportunities surface immediately.

“Legendary amounts of ‘red tape’, federal regulations imposed by multiple agencies (environmental, labour or financial), and the ability of individual states to impose their own restrictions and impede progress can temper the sunniest optimism. Strong, specific public policies will be needed to tackle these daunting headwinds.”

The US Federal Reserve has barely started to raise rates off the lowest base ever and looks likely to deliver some upside surprises next year, argues economist George Magnus.

“Taking the main Trumponomics themes as read, and assuming the president doesn’t go overboard with anti-growth trade policies, the Fed will face an edgy change in the economic environment.”

Renminbi bears should tread carefully — despite capital flight concerns, China’s situation is less dire than the headlines suggest, says the FT’s Henny Sender.

“The most crowded trade in the foreign exchange market is to go long the dollar against a host of other currencies. However, being optimistic about the outlook for the greenback does not necessarily mean investors or traders need be equally bearish on the renminbi.”

Vanguard founder Jack Bogle, dubbed the father of passive investing, is now criticising ETF market trends, noting that an explosion of trading is not paying off for investors.

Writing in FT Markets’ Age of the ETF series, he argues: “Anecdotal evidence seems to confirm the consensus that higher trading activity takes its toll on investor wealth.”

The FT’s Stephen Foley identifies one ETF group — WisdomTree — that Donald Trump could make great again — the shares have been a big winner since the Republican’s victory lifted the dollar.

The lessons of the US mortgage crisis are going unheeded in the small-business lending market, argues the FT’s Ben McLannahan, as a new breed of non-bank platforms have churned billions of dollars of loans.

And an outside disrupter was needed for change at the UK investment trust Alliance, says the FT’s Neil Collins, as “it has taken a new board to admit that it’s not much good at investing.”

Meanwhile, the FT’s Dan McCrum makes an argument for grabbing hold of a conversation with a bold markets prediction — and here’s one: disaster for the Treasuries market next year.

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