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Update: A Stimulatory US Should Prevail

By beled | May 11, 2017

Extract from the March 2017 quarterly report:

Although the European Union (despite Brexit) and China are major role players in the world economy, the US still retains a pre-eminent position as the world’s primary importing and consuming nation. As such, its fiscal and monetary policies have a greater potential to affect global growth than those of the exporting nations mentioned above. This is not to say that they are not important; they are, but the US is likely to remain the “lead steer” economically and the US dollar the global reserve currency for a while yet.

While Trump’s recently failed attempt to repeal “Obamacare” shows that the inbuild checks and balances in the US political system do not confer unfettered power on the President, the core election promises of infrastructural spending, tax cuts and deregulation are certain to prevail even if the road is somewhat long and winding. With US interest rates, although gently rising, destined to stay low in absolute terms for the foreseeable future, both fiscal and monetary policy will be stimulatory and, perhaps more importantly, synchronised, in contrast to recent years. Trump’s inwardly-focussed trade policy contradicts this, but is it really as protectionist as it would appear on the surface to be? If the global economic disadvantages to which the US has been subjected are removed, from unfair NATO costs to a total ban from the state-owned Chinese cigarette market, it is more like a “levelling of the playing fields”.

On balance, we remain convinced that the outlook for global growth has improved significantly and perhaps in line with the golden era of “supply-side” economics in the 1980’s and 1990’s. Underlying fundamentals for share investment, commodities and emerging markets remain sound, but in certain cases prices have run ahead of valuations and bargains no longer abound.

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