House Oversight — Estate records
HOUSE_OVERSIGHT_014432
Global Cross Asset Strategy – Year Ahead
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Global Cross Asset Strategy – Year Ahead The Trump inflection Investment Strategy 30 November 2016 Corrected Key takeaways • Market response to Trump is logical but moves have been frontloaded. We now see USD & rates only modestly higher next year. • We see higher growth and inflation, notably in Japan. We go long NKY, stay long EM AXJ & selective yield in equity/ credit. • Risk is an overshoot so we stay long USD/ short rates, adding a CNH put and short 10Y real rates. CNH a hedge vs trade risk. Investment strategy Global James Barty >> Investment Strategist MLI (UK) +44 20 7996 3291 james.barty@baml.com See Team Page for Full List of Contributors Trump extends some trends, starts others In the three weeks since Donald Trump’s election victory global markets have seen some dramatic moves. Som1e of those moves are extending trends that had already started – higher yields, higher USD, rotation from long to short duration. Others are new – JPY lower, NKY higher, EM lower. The key question is how much more they can go? Growth/inflation higher in 17/18 - modest fiscal boost Our economists think the fiscal impact of Trump will be modest at 0.5% on growth in H2 next year. Fiscal stimulus elsewhere also to be modest but it is taking the pressure off monetary policy. Growth was already improving so any fiscal stimulus helps. Our economists have both growth and inflation higher into 2017 and 2018. Inflection point in markets but much discounted already Market moves at turning points are often violent. The task of investors is to work out how much is already discounted. Our fixed income strategists have 10Y US yields at 2.65bp and bunds at 65bp at end 2017, also EUR/USD at 1.02 so moves look frontloaded to us. That suggests their implications for other markets should fade. Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens@baml.com Evolution not revolution – long NKY, short 10Y real rates If that is the case then we do not want t […]