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Forces of Movement

Sunday, November 13, 2016 9:42
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B4INREMOTE-aHR0cHM6Ly80LmJwLmJsb2dzcG90LmNvbS8tbFRXaFlrV1p1Q3cvV0NZcF9KY0dJa0kvQUFBQUFBQUFXUmMvUjc4a1F5Z3JKaFFxX1NxZVFIaDlnRVFneEFSNWxxSzZnQ0xjQi9zNDAwL3RyZWVzLmpwZw== / by Marc Chandler / November 13, 2016

The results of the US election did not unleash new forces in the capital markets as much as accelerate those forces that we had already identified as being operative.  The cyclical low in interest rates has likely already been registered. There also seems to be a somewhat  greater willingness in several countries to move toward looser fiscal policy.   The divergence between the US monetary policy on the one hand, and the EU and Japan on the other, is poised to widen further.
It is not unusual that, despite the fiercely fought partisanship, the US political cycle does not exactly coincide with the economic cycle.  For example, the deregulation and military build-up that is associated with Reagan began under Carter.  Following the Soviet invasion of Afghanistan, Carter began boosting military spending, and the deregulation of the airlines began on his watch.    Although we dub the dollar’s bull market of that era as the “Reagan dollar rally,” it began before he was elected.  Volcker had already begun hiking interest rates, and the dollar had bottomed.
The recognition of the limits of monetary policy had become several commonplace quarters ago.  A new Canadian government provided modest fiscal stimulus.  Hammond, the UK Chancellor of the Exchequer, is expected to also offer some stimulus in his Autumn Statement later this month.


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