After an initial wobble, the markets have stabilized as two themes emerge: reflation and the spread of populism.The shift away from monetary policy towards fiscal policy had already begun, and both US presidential candidates had promised fiscal stimulus. Trump offered greater stimulus (spending and tax cuts), and other policies on trade and immigration that seen as pro-growth.Canada has already shifted some burden of stimulus to fiscal policy, and the UK government is expected to unveil a small step in that direction with the Autumn statement in a fortnight, the US move may be bigger. The obvious comparison is Reagan in 1980. Since the financial crisis, low real growth and low inflation has bedeviled policymakers across Europe, North America and Japan.Comparisons between the Brexit and the US election were being drawn by some observers, and now with two points on the line, the third is expected from Europe. The Italian referendum in early December coincides with the Austrian presidential election. The Italian referendum is over the size and powers of the Senate, the reformist center-left Prime Minister Renzi had threatened to resign if defeated. He has since backtracked, but some political damage is likely, and some are still suggesting it could topple the government. This is important as the leading opposition party, the Five-Star Movement, favors a referendum to leave the monetary union.Some bookmakers shifting odds that Le Pen wins the French presidency next year. She promises a referendum on EU membership is she wins. The Netherlands and Germany also hold elections next year. The populist parties do not appear as powerful; there as elsewhere, but seem to enjoy some momentum.Asian markets played catch-up today. The MSCI Asia-Pacific Index rose 2.8% after yesterday's 3.2% slide. The Nikkei rallied 6.7%, more than offsetting yesterday's 5.4% drop. Bond yields rose, with Australian and New Zealand 10-year yields rising 21 and 28 bp respectively.European bonds are extending yesterday's sell-off, while stocks continue to move higher. Financials are leading European shares higher....MORE
Thursday, November 10, 2016
"US Dollar, Equities, and Commodities Firmer as Reflation Trade Takes Hold"
From Marc to Market: