Donald Trump’s economic team vowed to push forward with a campaign promise to launch a $1 trillion fiscal stimulus and cut corporate taxes by up to 20 percentage points as the president-elect said he would quickly begin naming members of his incoming administration.
The prospect of Mr Trump holding to his campaign pledges has led to a tumultuous week in global financial markets, with investors being forced to adjust quickly to an incoming economic plan that could stimulate traditional industries and slash business regulation.
The rapid change in sentiment has led to a shakeout across asset classes, with financials rallying in hope of a deregulation push; tech stocks selling off amid fears of trade wars hitting their Asian supply chains; and US Treasuries plummeting in anticipation of heightened government debt and inflation.
The post-election equities rally that has reshaped the markets cooled off yesterday, with the S&P 500 dipping 0.2 per cent in afternoon trading, while the Eurofirst 300 fell 0.6 per cent, paring back this week’s gains.
Writing in the Financial Times, Anthony Scaramucci, a member of Mr Trump’s economic advisory council, said the president-elect would finance the new spending plan with “historically cheap debt and public-private partnerships” and said it would cut deficits by stimulating economic growth.
“Economies around the world are fighting deflation largely because of a post-crisis movement toward fiscal austerity,” Mr Scaramucci writes. “We can close the wealth gap in America by replacing emergency-level interest rates with fiscal stimulus.”
A new debt-fuelled spending plan has spooked the bond market, with yields on US Treasuries jumping to their highest levels in 10 months as investors prepare for the prospect of renewed inflation. Bond yields rise as their prices fall.
“It’s a tectonic shift,” said Henry Kaufman, the former Salomon Brothers chief economist and the first analyst dubbed “Dr Doom” for correctly calling the last bond bear market in the 1970s.
Mr Kaufman predicted the end of a three-decade bond bull market, because of the likelihood of unfunded tax cuts, infrastructure spending and a radically reshaped Federal Reserve.
“I would say the secular trend is going to be upwards now,” he told the FT. “Secular swings are hard to forecast, but the secular sweep downwards in interest rates is over, and we are about to have a gentle swing upwards.”
Mr Trump yesterday tweeted that he would soon start revealing the names of people he wanted to serve in his administration, with many in Washington focused on who would be chosen as chief of staff, arguably the most powerful White House position after the president.
One key question is whether Mr Trump will choose someone from his campaign inner circle such as Stephen Bannon, the former head of the rightwing Breitbart news site, or a more traditional Republican such as Reince Priebus, chairman of the national party committee who has good relations with Capitol Hill leaders.
