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A little less conversation, a little more action, Mr President please?

Lim Say Boon Published on Mon, Apr 03, 2017 / 4:29 PM GMT+8

US President Donald Trump, global equities, Trump Trade

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SINGAPORE (April 3): Global equities will likely correct in 2Q17 as doubts over Donald Trump’s ability to steer the world’s largest economy boil over.

Risk appetites will pull back in coming months because US President Donald Trump has not delivered on the most economically significant parts of his agenda – that is, tax cuts and infrastructure spending/fiscal stimulus. Nor should markets have been expecting anything quite so soon. Yet stock prices have moved ahead of reality. More significantly, Trump has blown his first months in office politicking rather than building. The noise of the tweets, the apparently pointless political confrontations, and the controversy over Team Trump’s dealings with the Russians have dominated the narrative of the early months of his presidency. Donald Trump has been behaving less the President of the most powerful nation on earth than an angry politician still in the midst of a campaign. And his erratic policy outbursts have created international uncertainties on the trade and geopolitical fronts. These are a lot of policy negatives for global equities, which have on average rallied 11% off the lows from when Trump won the election.

But a new bear market in global equities is unlikely. Markets do not typically go into bear mode in the absence of recession or geopolitical shocks. We cannot rule out the latter but the former is highly unlikely. Indeed, the global economy is gathering growth momentum, with the US at the forefront. Even the European economy – which the market expects to post flat economic growth this year – should surprise on the upside this year. The Eurozone Composite Purchasing Managers’ Index (PMI) – often seen as a forward indicator of economic activity – has been surging since September last year. Meanwhile, China will likely still put in a creditable 6.5% GDP growth performance this year.