The Trump train rolls on, creating volatility in markets and uncertainty in Economies. We have been seeing significant changes since his election. Equities have been volatile, the dollar has been weakening, and bond yields have been rising. The opposite of what you would expect.
The flip side of this has been a turnaround in investors’ views of Europe and China. What has also changed is that the jury is now out on what the implications for this are for the long term.
The changes reflect increasing concern over the US Economy, the uncertainties with on/off tariffs, whether they are a bargaining tool or going to be more permanent, and the effects on employment and incomes due to the attempted reduction in US Government spending.
The potential growth that could arise in Europe comes from a major change that we are seeing in Germany’s stance on spending. China is also looking hard at how it reacts in a drive not to let US action damage its economy, with more stimulus and reform being enacted to reduce the risk of a stagnant economy.
The American Government is arguing that the changes they are making are part of a volatile ride to a better place with stronger/fairer terms of trade and better use of public money, freeing up resources for the Private sector and allowing for better growth in the private sector. The recently voted through tax cuts are reigniting concern as to the US long-term debt trajectory.
This takes us to one of two places: Europe and China actually implementing a growth agenda, the US model working, leading to higher overall global growth; alternatively, Europe and China hesitating, whilst the changes in the US lead to a deceleration of its Economy due to loss of confidence from consumers and businesses.
Markets are now reflecting the uncertainty that Trump is creating. In the meantime, we retain our cautionary approach. We have consistently held lower-risk assets over the past two years, and we trust this will continue to help portfolios avoid the worst outcomes.
by Tim Wall, Investment Director