G10: Global QE will be in further doubt after US elections result - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that there is no doubt there are parallels in US elections with what happened in the UK with Brexit.

Key Quotes

“This is another clear example of voters voting for something different and to a degree unknown purely because of a desire for change. This second clear example of this will have longer-term reverberations and could well encourage investors to further position for the end of QE. The general global policy mix of loose monetary policy and tight fiscal policy has run its course and the call from voters for change will undoubtedly be now taken more seriously by global authorities. The onus is shifting to governments and this latest message is likely to encourage greater urgency by governments to take the baton from central banks to lift economic growth.

That implies not just a steeper yield curve in the US but elsewhere too. This will potentially have most immediate impact in Europe. The ECB is widely expected to extend QE beyond March 2017 and while we still expect that to happen, growing opposition to QE is likely.

The political movement – Brexit and now Trump – against the status quo also could have negative implications for the euro over the short-term. We have the Italian constitutional referendum on 4th December, the re-run of the Austrian presidential election on the same day, the Netherlands general election in March and then the French presidential elections in April and May followed by the German elections. There is every chance of some further political shocks in Europe over the coming twelve months to match what has happened in the UK and the US. That’s where the political risk premium is heading next! The EUR/USD rate is higher today but that’s not sustainable in our view.”