Trumpflation 2.0: Back with a vengeance? - ING

Analysts at ING noted that Trump's comments related to near-term 'tax changes' are going to lead the week ahead as traders adjust positions to move as his rhetoric or tweets indicate.

Key Quotes

"President Trump's reassurances over a 'phenomenal' tax plan has laid the foundation for a new wave of US reflationary sentiment to drive markets over the coming weeks. Investors so far this year had been losing faith in classic Trumpflation trades (long inflation and risk, short duration) - with recent protectionist rhetoric having dominated the economic agenda of the new Trump administration."

"But revived hopes of lower corporate taxes and a US tax holiday - coupled with a generous infrastructure spending package - could reinstate the dollar-friendly conditions of rising US yields and higher equities. Steven Mnuchin's confirmation as Treasury Secretary this week could also pave the way for more tax plan details to be released; the bottom line is expect the economic dial to shift towards fiscal policy ahead of the President's key speech to Congress (28 Feb)."

"While there's a chance investors may want to wait for the release of Trump's tax plans before passing judgement, if ever there was a sense that all the reflationary cards are falling into the place, it would be now. This week's US data should reaffirm the theme of rising inflationary pressures and resilient consumer spending, a combo that should perk the ears of Fed hawks."

"Chair Yellen may opt to play it cool at Tuesday's semi-annual testimony to the House Committee, but with markets only pricing in a 30% chance of a March rate hike, we see only upside risks to the US dollar from what should largely be positive comments from the Fed chief. We look for the start of another USD rally this week, with EUR and JPY both vulnerable to further downside."

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