"A Trump presidency will not just inflate Trump’s ego, we believe his policies are likely to inflate prices also."
Donald Trump, and the Republicans controlling both the House and Senate, is the result that stockmarkets least expected. However, the initial negative reaction in financial markets is being quickly reversed as stockmarkets realise the longer term implications. While many Asian stockmarkets knee-jerked a long way lower in the shock of the moment, as people have come to make considered assessments, the reaction seems more rational.
What we can know is that his policies will be broadly inflationary, whether it is his protectionist policies, controlling immigration or investment in infrastructure, all point to a more inflationary tendency. Demand is likely to be higher for natural resources as a consequence of the infrastructure spend he is likely to make, although we doubt he will be building a wall between the US and Mexico.
If he manages to introduce tariffs on certain imports, this will also lead to higher prices in the US. That said, it’s not clear whether he will be able to implement such policies as the rest of his party are very pro-business and vested interests will be strongly against anything that damages US business interests.
He also wants to control immigration, particularly illegal immigration. Clearly, the effect of immigration is to put downward pressure on wages, so it is also inflationary.
As a populist he is certain to favour policies, in whatever area, that benefit the masses or at least are perceived to do so. In general, history would show that populist leaders are often inflationary as they pursue policies which stoke final demand, and improve growth and wages. While we doubt he is likely to be as populist as certain Southern European or Latin American leaders of the past, we expect the tone to move in that direction.
So in conclusion, we see that the election of Trump will be broadly supportive of stockmarkets and negative for bonds in the medium term although this is not guaranteed.
Fund Manager - Miton Multi Asset Team
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Source for information: Miton as at 09/11/2016 unless otherwise stated.
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