April has been a month of extremes, but it is in extreme scenarios that we are learning what limitations Trump faces in his bid to reshape the US domestically, and in its relationship with the rest of the world. We think these constraints provide the market with some reassurance that the most negative tail-scenarios can be avoided, even though the economic outlook is set to deteriorate in coming months.
Highlights
- Amid some dramatic swings in economic policy, we are encouraged that Trump seems to be increasingly aware of and reactive to his constraints
- Recent de-escalations on trade and Fed Chair Powell show sensitivity to the bond market and the potential for damaging economic and political outcomes
- At the same time, a good deal of damage has already been done to the economy, and markets will have to weigh near-term downgrades with a better policy outlook
- We look to fade extreme optimism or pessimism in risk assets, focusing on high quality equities and bonds while [playing for] further USD weakness.
‘The bond market is very tricky’
The bond market has been a preeminent constraint on Trump, offering an immediate and unbiased assessment on his policy proposals. When the Treasury curve bear steepens – driven by long-end bond yields rising, US equities falling, and the USD weakening, all together – it is a sign that markets are rejecting the direction of US policy.
You can now read the full whitepaper at the link below
