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Trumponomics: Markets anticipating presidential leadership
Regaining economic momentum will be the first challenge the new administration faces along with other world leaders.
11 Min Read
For President Trump, Congress and the Federal Reserve the heavy lifting now begins as they partner with their respective global counterparts.
All countries globally have been facing similar challenges: chronic slow growth; low to negative interest rates; rising debt; and building populists’ movements - a primary symptom of economic chronic weakness in country after country around the world.
The first priority, accelerate the reflation process to regain economic momentum.
Without regaining economic momentum domestic and global leaders cannot adequately address the causes of the world’s current financial ills of almost a decade.
Fiscal and Monetary Policy – Near Term Game Plan
Accelerated move away from:
A chronic low inflation to an aggressive simulative reflation economic setting
S. Central Bank’s monetary accommodation to managing economic activity in a rising interest rate environment
Domestic & Global Economy: Glass Half Full or Half Empty?
Glass Half Empty: This is the period I acknowledge as pre-2016, before reflation efforts became increasingly aggressive. It was the period of building chronic slow growth, low to negative interest rates, low inflation, and building debt. A continuation of status quo fiscal and monetary policy would have allowed global deflationary forces to destabilize economic activity in the world’s economies. As pointed out in a Tweet:
Central Banks are trapped by math.
If they raise the rates the Central Banks destroy debtors and asset markets.
If they keep rates at zero the Central Banks destroy pension funds, banks and insurers.
Simon Mikhailovich @S_Mikhailovich
Fiscal policymakers were trapped by a strong belief among many of their constituents to maintain fiscal responsibility without fully understanding the building domestic and global economic paralysis. Germany and the European Union in general embraced fiscal responsibility and austerity to an extreme, which in part has and continues to undermine their future.
Glass Half Full:
2016 was a busy year domestically and globally for fiscal and monetary policy activities. Governments and Central Bank’s simulative and accommodative activities to alleviate chronic slow growth and low to negative interest rates are presently showing positive results.
Couple that with present expectations, anticipation, and belief that the U.S. Presidential, Congressional, and Central Bank Leadership in tandem with their global counterparts will accelerate and build on 2016 accomplishments, then 2017 is setting up to be an interesting transition year.
How President Trump provides his leadership in the policy arena related to Fiscal, Monetary, Regulatory and Trade Policies is all important.
Trump, Policy, Markets, January 17, 2017, by David R. Kotok, Chairman and CIO at Cumberland Advisors says.
As Don Rissmiller of Strategas Research Partners succinctly points out, “There are four types of government policy that can be used to steer the economy: 1) monetary policy, 2) fiscal policy, 3) regulatory policy, and 4) trade policy.”
We will use Don’s framework for today’s discussion. Monetary comes first.
After eight years of zero-interest-rate policy, the United States’ central bank finally raised its policy interest rate by a quarter point in 2015 and by a second quarter point in 2016. For the last 10 years, the Fed has missed on all of its forecasts of inflation (PCE) and unemployment (U3) and growth (GDP). The originally famous dot plot has become infamous, and one member of the FOMC did not even hazard a forecast as of the last meeting. (See “December FOMC Minutes,” by Bob Eisenbeis: com/december-fomc-minutes/.)
Markets seem to be expecting two Fed hikes in 2017. So our base-case forecast for the end of 2017 is a policy rate range of 1.25 percent to 1.5 percent. That would put three-month LIBOR at about 2 percent. We expect the 10-year US Treasury note to yield around 3 percent or so. We believe the tax-free bond market sell-off was wildly overdone, and we expect the present 4 percent level on tax-free high-grade Munis to give way to the 3 percent handle level. Beyond 2017 is still guesswork, since the details of Trump policies are only guesses. We think this will change quickly, and then markets can refine estimates of Fed policies and rate forecasts.
http://us8.campaign-archive2.com/?u=d6f020f3bd6a1e2c4eb254e6c&id=c6240c2e84&e=b0091740b9
President Donald Trump 45th President of the United States
January 20, 2017
January 20, 2017
Nominations Sent to the Senate
S. and Global Markets
Markets are not only influenced by fundamental information and data, technical chart patterns and normal market participant activity, but in today’s global economic setting they are increasingly influenced by price complexity created by building government and central bank intervention required to:
Manage building global risks and uncertainty
Reflate & grow the global economy and grow business
Multiply investment options, and
Cool building separatist and populist movements
Near Term Market Considerations Week Beginning January 23, 2017
Near Term Summary Considerations:
10-Year US Treasury Yield: Neutral, acting a little bullish with a lower yield potential
US Dollar Index: Correcting upside move underway or possible sideways consolidation for a period
CRB Index: Global macro forces supportive and providing green-shoot inflationary support
$WTIC Light Crude Oil: Fascinating market, but a market which appears in search of higher highs, some corrective price action should be anticipated
Soybeans: Near term price strength emerging, which makes one revisit 2016 price action in March, April and May of 2016
Corn: This market continues to act more bullish than bearish, closing and holding above $3.69 likely implies a move into the $4.15-plus area
Rice: Price weakness remains defined in part by global economic, political, and social uncertainties. Overplanting in 2017 given present fundamentals would provide added market challenges
Cotton: Bullish, if prices fall below 68-cents corrective price action likely, re-evaluate price expectations
Wheat: Bullish Acting, but needs to close and hold above $4.39
SPY SPDR S&P 500 ETF: Trend remains positive, prices may need to correct some of their gains
QQQ NASDAQ Power Shares: Another strong week, corrective price action needed, but not required
EFA iShares ETF - Global Equities Excluding U.S. and Canada: Building momentum
EEM iShares ETF, Emerging Market Equities: Range bound –Potentially bullish – Positive for commodities in general
MCHI iShares ETF - China Equities Available International Investors: Potentially bullish, momentum appears to be building
Market-by-Market: Near Term Market Considerations Week Beginning January 23, 2017
Charts 1 - 3. $UST10Y - 10-Year US Treasury Yield
Primary Consideration:
Neutral: the 10-Year Treasury Yield acting a little bullish with a lower yield potential
This is a market that likely builds a trading range for the next one to two years maybe between 2 and 3, but too early to tell
Presently we simply need to see how the chart activity unfolds
Given market structure presently financial institutions and borrowers are winners at these levels
Some suggest the 35-year bull bond market will be over with a yield that holds above 2.6, others at 3.0; I am more in the camp of 3.5. Actually, global fiscal and policy intervention may make picking these points a little premature
This is a market that could simply move sideways for a few years
Charts 4 - 6. Power Shares US Dollar Index
Primary Considerations:
Neutral - Correcting upside move underway. The following determines sideways consolidation for a period or a resumption of the Dollars move to the upside:
2017 European Union management/mismanagement a key factor in dollar strength or weakness in year ahead
Bigger Picture: Global interventionist government and Central Bank activities will define dollar strength or weakness over the next 3 to 12 months, especially President Elect Trump’s currency policy objectives
Chart 7. EURO
Possible near term strength
Chart 8. Australian Dollar
Possible near term strength
Chart 9. Canadian Dollar
Potential near term strength
Chart 10. Japanese Yen
Potential near term strength
Chart 11. British Pound
Possible corrective action before heading lower
Chart 12. Dow Jones
Trend remains up
Chart 13. Dow Transports
Trend remains up
Chart 14. S&P 500 Large
Trend remains up
Chart 15. NASDAQ Composite
Trend remains up
Chart 16. World less U.S. & Canada
Positive momentum appears to be building
Chart 17. Emerging Markets
Positive momentum appears to be building
Chart 18. Australia
Positive momentum appears to be building
Chart 19. Brazil
Positive momentum appears to be building
Chart 20. Canada
Positive momentum appears to be building
Chart 21. China
This China equity remains neutral
Chart 22. Mexico
Possible bottom being formed
Chart 23. Japan
Positive momentum appears to be building
Chart 24. Russia
Price direction likely dependent on oil price firmness
Chart 25. India
India is presently dealing with a number of internal issues
Charts 26 - 28. CRB Index
Primary consideration:
The CRB Commodity Index appears to be building a base to move higher, which near term would be a primary function of oil price strength leadership and/or broad commodity support, reasonably stable dollar, and belief and confidence in the near term future.
Charts 29 - 31. $WTIC Light Crude Oil
Primary Consideration:
Fascinating market, but a market which appears in search of higher highs, some corrective price action should be anticipated
2017 – Likely primary range $40 to $60 with possible high in $72 area
A challenging market being influenced by economic and geopolitical issues
Washington Leadership likely bullish U.S. production
OPEC and other oil producers have major role in defining 2017 price structure
Global uncertainties supportive of prices
Charts 32 - 34. Soybeans
Primary Consideration:
Near term price strength emerging, which makes one revisit 2016 price action in March, April and May of 2016. Given fundamentals I remain concerned about additional price weakness and the culmination of a bottoming process near term.
2017 – Pricing opportunities likely emerge as the year progresses
Additional Thought:
Market participants appear to be building a risk appetite. Being short means at least having close mental stops
Charts 35 – 37. Corn
Primary consideration:
This market continues to act more bullish than bearish, closing and holding above $3.69 likely implies a move into the $4.15-plus
2017 – Pricing opportunities emerge as the year progresses in corn, soybeans, and wheat
Charts 38 - 39. Rice
Primary consideration:
Neutral – Price weakness remains defined in part by global economic, political and social uncertainties
Overplanting in 2017 without additional demand source could be highly problematic for 2017 marketing year prices
Charts 40 - 42. Cotton
Primary Consideration:
Bullish prices likely into the 84-cent area. Near term if prices fall below 68-cents, then likely corrective price activity underway
Charts 43 - 45. Wheat
Primary consideration:
Bullish Acting, but needs to close and hold above $4.39
Charts Book Index – See charts accompanying this article.
Chart 1. $UST10Y - 10-Year US Treasury Yield, Weekly Chart, 2014 – Jan. 20, 2017
Chart 2. $UST10Y - 10-Year US Treasury Yield, Daily Chart, May 2016 – Jan. 20, 2017
Chart 3. $UST10Y - 10-Year US Treasury Yield, Daily Chart, 2007 – Jan. 20, 2017
Chart 4. Power Shares US Dollar Index, Weekly Chart, 2014 – Jan. 20, 2017
Chart 5. Power Shares US Dollar Index, Daily Chart, July 2016 – Jan. 20, 2017
Chart 6. Power Shares US Dollar Index, Monthly Chart, August 2007 – Jan. 20, 2017
Chart 7. EURO Monthly Chart, 1997 – Jan. 20, 2017
Chart 8. Australian Dollar Monthly Chart, 1997 – Jan. 20, 2017
Chart 9. Canadian Dollar Monthly Chart, 1997 – Jan. 18, 2017
Chart 10. Japanese Yen Monthly Chart, 1997 – Jan. 20, 2017
Chart 11. British Pound Monthly Chart, 1997 – Jan. 20, 2017
Chart 12. Dow Jones, Monthly Chart, 1997 – Jan. 20, 2017
Chart 13. Dow Transports Monthly Chart, 1997 – Jan. 20, 2017
Chart 14. S&P 500 Large Caps Monthly Chart, 1997 – Jan. 20, 2017
Chart 15. Nasdaq Composite, Monthly Chart, 1997 – Jan. 18, 2017
Chart 16. World less U.S. & Canada Monthly Chart, 2001 – Jan. 20, 2017
Chart 17. Emerging Markets Monthly Chart, 1997 – Jan. 20, 2017
Chart 18. Australia Monthly Chart, 1997 – Jan. 20, 2017
Chart 19. Brazil Monthly Chart, 1997 – Jan. 20, 2017
Chart 20. Canada Monthly Chart, 1997 – Jan. 20, 2017
Chart 21. China Monthly Chart, 2004 – Jan. 20, 2017
Chart 22. Mexico Monthly Chart, 1997 – Jan. 20, 2017
Chart 23. Japan Monthly Chart, 1997 – Jan. 18, 2017
Chart 24. Russia Monthly Chart, 2007 – Jan. 20, 2017
Chart 25. India Monthly Chart, 2007 – Jan. 20, 2017
Chart 26. $CRB Reuters/Jefferies CRB Index, Weekly Chart, November 2013 – Jan. 20, 2017
Chart 27. $CRB Reuters/Jefferies CRB Index, Daily Chart, July 2016 – Jan. 20, 2017
Chart 28. $CRB Reuters/Jefferies CRB Index, Monthly Chart, 2007 – Jan. 20, 2017
Chart 29. $WTIC, Weekly Chart, 2014 – Jan. 13, 2017
Chart 30. $WTIC, Daily Chart, July 2016 – Jan. 20, 2017
Chart 31. $WTIC, Monthly Chart, 2007 – Jan. 20, 2016
Chart 32. Soybeans, Weekly Chart, 2014 – Jan. 13, 2017
Chart 33. Soybeans, Daily Chart, July 2016 – Jan. 20, 2017
Chart 34. Soybeans, Monthly Chart, 2004 – Jan. 20, 2016
Chart 35. Corn, Weekly Chart, 2014 – Jan. 20, 2017
Chart 36. Corn, Daily Chart, July 2016 –Jan. 20, 2017
Chart 37. Corn, Monthly Chart, 2007 – Jan. 20, 2016
Chart 38. Rough Rice Mar '17 (ZRF17) CBOT, Quarterly, Continuation Chart, 1987 – Jan. 20, 2017
Chart 39. Rough Rice Mar '17 (ZRF17) CBOT, Daily Chart, Feb. 2016 – Jan. 20, 2017
Chart 40. Cotton, Weekly Chart, 2014 – Jan. 20, 2017
Chart 41. Cotton, Daily Chart, July 2016 – Jan. 20, 2017
Chart 42. Cotton, Monthly Chart, 1997 – Jan. 20, 2017
Chart 43. Wheat, Weekly Chart, 2014 – Jan. 20, 2017
Chart 44. Wheat, Daily Chart, July 2016 – Jan. 20, 2017
Chart 45. Wheat, Monthly Chart, July 2016 – Jan. 20, 2017
Dr. Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected].
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