As we wrote in our ‘Top Trumps’ blog post at the end of last year, the political backdrop in the US remains highly uncertain. While we have already seen Donald Trump withdraw from the Trans-Pacific Partnership, we’re still waiting to see exactly what his presidency will look like and which other campaign promises he will make good on.
We are concerned that risk markets are currently complacent about this uncertainty, with investors seemingly buying into the good news rather than taking account of any potential problems.
As our ‘Trumpometer’ below shows, a number of Trump’s pledges such as pro-business policies and infrastructure spending could be positive for the economy, leading to higher growth and inflation – a bearish environment for bonds.
However, his more controversial campaign promises, including protectionist trade policies and an immigration clampdown, could lead to a flight to safety – a boost for ‘safe-haven’ bonds.
In the meantime, we continue with our ‘tool kit’ of ways to benefit from these changing markets. We have introduced some European inflation protection, to supplement our existing US TIPS (Treasury Inflation-Protected Securities) on the back of rising eurozone inflation. We are also looking at our corporate bonds and planning to take advantage of those companies that might benefit from domestic tax changes.
Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors.
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