G10 Growth: Fiscal policy to the rescue? - TDS

Research Team at TDS suggests that the post-crisis toolkit has mainly consisted of monetary policy and with many countries still working through pockets of excess capacity, market participants have actively discussed a possible rotation to fiscal policy, especially now in the US. 

Key Quotes

“The ’shock’ US election result has accelerated this debate.”

“Countries that use fiscal policy are likely to see stronger currencies and steeper curves. For China, we look for continued fiscal support to offset structural rebalancing while higher commodity prices are unlikely to make a material change in fiscal numbers in EMs.”

“Market: To capture this theme, we think this more activist fiscal policy favors the USD against the low-yielders (EUR, JPY and CHF) and a stronger push towards a reflationary environment also favors short CADNOK. Reflation favors short CADNOK. GE 5s30s steepeners should give way to US 5s30s flatteners and JPY 10s30s steepeners.”