US and Europe: Politics in the box seat - ANZ

Research Team at ANZ, have little doubt that the world is shifting into a new paradigm where politics and fiscal policy will gain far more prominence.

Key Quotes

“Markets are indeed behaving that way already as the ‘Trumptrade’ of higher yields and USD remains the centre-piece of market moves. Markets are hanging out for any news-flow and detail on the US President elect’s policies and key appointments (with commentators noting the announcements over the weekend are certainly at the more ‘extreme’ end of the scale) and speculating on the economic consequences.”

“But it is not just about the US. The UK Supreme Court has recently ruled that the Scottish and Welsh governments can intervene in the Brexit process, likely delaying negotiations, and political uncertainty in Europe is on the rise more broadly, with Italy’s December 4 referendum just around the corner. Now this is not to say that monetary policy is set to fade into irrelevance. It is indeed still highly important that we are seeing clear divergence in rhetoric from some of the world’s largest central banks. The Fed is locked in to tighten, while the ECB continues to talk about the lack of a convincing lift in core inflation (hinting at a possible extension of QE). But markets are used to trading off monetary policy divergences. A focus on politics is a little different and speaks to a much more volatile and uncertain backdrop.”