As the dust settles, everyone’s trying to understand what Trump means. With risk on and markets surging, nothing is happening as expected. Pundits everywhere got it wrong.
This doesn’t mean punditry is dead. “There are as yet far more questions than answers about the future policy stance of a Trump presidency and the market will struggle to digest the full implications for some time to come,” said Deutsche macro strategist Oliver Harvey yesterday. “…The bottom line for markets is that while 2016 has market a shift from central bank policy and towards more idiosyncratic political risks, the new regime appears here to stay.”
Barclays’ macro analysts have been making their own attempts at parsing the future. The two charts below summarize their conclusions: GDP will fall and then rise; inflation will rise and rise and rise.
Basically, Trump’s presidency looks like increasingly good news for banks’ macro trading desks. Barclays is still expecting one U.S. rate hike in 2016 and two rate hikes in each of 2017 and 2018. Rates traders are back.