Aviva Investors: Trump victory raises prospects for reflation

(London, Zurich): According to Aviva Investors' Senior Economist and Strategist Michael Grady, fiscal policy is likely to take centre stage following Donald Trump's US election success, which has significant implications for financial assets.

• Donald Trump's victory in the US presidential election has the potential to have a profound effect on the global economy in a number of ways.
• Trump's likely fiscal and trade policies are expected to boost rising inflation further. Concerns around the potentially adverse impact on global economic growth of a trade war have for now been relegated to the back seat.
• As at 21 November the yield on the benchmark ten-year US Treasury has risen to around 2.32 per cent, its highest level in a year and up from a record low of around 1.35 per cent just four months ago. Given the potential scale of fiscal stimulus Trump will look to push through, the bond market sell-off most likely has further to go.
• A fiscal boost according to Trump's plans will likely result in higher inflation and the Federal Reserve raising interest rates faster.
• Trump's proposed tax cuts are not certain to be approved by Congress, Republicans majority in the Senate being only slim, and Democrats along with just a few rebellious Republican senators can secure amendments.
• One of the big questions is whether the increase in uncertainty associated with a Trump presidency could outweigh the reflationary policies.
• Tighter monetary policy in the US, higher bond yields and a stronger dollar could prove challenging for emerging-markets assets. A reversal of the flows into these countries since the election has already seen emerging market debt, currencies and to a lesser extent equities, all sell off.

Aviva Investors full Insights article is available here.

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For more information please contact:

Kirsten Duelli

Instinctif Partners

+41 44 280 11 88

kirsten.duelli@instinctif.com