The climax of the fourth quarter of 2016 was undoubtedly Donald Trump’s election to the White House and, probably more so, the Republican majorities in the House of Representatives and the Senate. After a shaky night, risk assets reacted positively the following day. The new president is in a strong position to implement, without too much opposition, his stimulus program, combining tax cuts and increased public spending.
Until recently, the expansion of global central bank balance sheets seemed con-demned to increase indefinitely. But (thankfully), monetary policy makers have had a serious wakeup call: quantitative easing (“QE”) is less and less economical-ly effective and potentially harmful in the setting of risk premiums via negative short-term interest rates.
A multitude of risk factors have unsettled the markets during the first six months of the year. Britain’s decision to exit the European Union (51.9% vs 48.1%) has sent shock waves through financial markets and rattled investors who underestimated its risk. It is the most recent and blatant example of the growing global trend towards protectionism. It will have tremendous repercus- sions on the geopolitical landscape including this fall’s US election.
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