Fast and Furious – Market Drift

Markets’ reactions in the four days following Donald Trump’s surprise victory in last week’s US presidential elections has lent support, in some cases somewhat perversely, to my underlying view that:

  • Central banks and markets were at an inflexion point. My central premise was that slowly rising global GDP growth and inflation was starting to alter major central banks’ thinking, with developed central banks increasingly unlikely to cut policy rates and/or boost/expand their QE programs. The market implication was that global yields had probably bottomed out and that greater market volatility would likely accompany the transition to higher yields (see Central bank easing nearing important inflexion point, 16 September 2016).
  • The US Federal Reserve (Fed) would hike its policy rate 25bp at its meeting on 14th December; and
  • The dollar nominal effective exchange rate (NEER), which is now up about 2.8% year-to-date, would strengthen in 2016 for a third consecutive year, albeit more modestly than in 2014 and 2015 when it appreciated 10% and 12% respectively.

Read my full article on my website: Fast and Furious – Market Drift