US election: A potential game changer – Deutsche Bank

Research Team at Deutsche Bank, suggests that the outcome of the US election was unexpected is an understatement as few dared forecast a Trump victory, let alone a Republican sweep.

Key Quotes

“Yet with Trump headed to the White House and the Republicans retaining control of both houses of Congress, the US has elected a unified government for the first time since 2008.”

“Despite criticism of some of Trump’s policies, they could provide a material boost for growth and, in return, for risk assets, if they are implemented well. He has pledged a large fiscal stimulus, ambitious tax cuts and reduced regulation. The fiscal plan would represent the first tangible shift away from the policy mix that has prevailed since the crisis -- very accommodative monetary policy compensating for tight fiscal policy -- and that many investors have been hoping for over the last year.”

“There is a risk that these policies will not be fully implemented, especially given that Trump’s fiscal plans could lead to a larger deficit than Congress will allow. This means that policy uncertainty will prevail for the time being. Moreover, not all of Trump’s proposals are positive. The biggest threat to growth is a possible protectionist turn, which could depress global trade and even trigger trade wars. A further risk is that Trump’s successes result in political spillovers to the upcoming elections in Europe by strengthening the fringes of the political spectrum.” 

“Markets have so far given this result the benefit of the doubt, embracing the potential boost to growth and inflation that could come from a shift in the policy mix. The extent to which this continues will depend on the policy signals from the next administration over the coming months. A Trump Presidency should be positive for the dollar and US equities and should allow for the continuation of yield curve steepening.”