“In the Trump 2.0 administration, the fiscal outlook and inflation expectations will be the main market themes to watch.”
- The lower-than-expected core inflation reading drove bond yields lower, after the previous rise.
- Inflation, Trump’s policy, and Fed expectations are key market drivers.
- We expect uncertainty to remain high entering the Trump 2.0 administration.
Inflation news has been a key market driver over the past week, with core CPI (inflation excluding food and energy prices) increasing by only 0.2% in December, lower than both the previous month and below expectations.
More than indicating continued slow progress on reducing inflation, the main impact has been to reduce recent pressure on bond yields and leading to a strong repricing in market expectations on the Fed, with equities also benefitting.
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