Our Convictions: February 2017

The election of D. Trump to the presidency of the United States had several major consequences on the financial markets:

• Firstly, a repricing of growth prospects, inflation expectations, and a clear rise in bond yields, which is particularly significant in an environment previously determined by debates on secular stagnation and on the end of inflation. The question is whether this repricing is justified in the short term only or in the long term too. In short, are we seeing an extension of the current cycle of growth (which was slowing down) or rather at the very beginning of a new breath and a new cycle of growth?

• Moreover, in a world dominated by accommodative monetary policies and reinforcing the growth policies desired by the governments, strong tensions emerged between the new US administration and the Fed on the conduct of monetary policy first, and most recently on the current (deemed “unacceptable”) role of the Fed in regulation (including banking). Apart from the fact that Janet Yellen will probably not be re-appointed to her position in 2018, we can expect the rising tensions between Fed and Administration Trump, which will add volatility to the markets.

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