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Recession or New Records
Recession or New Records

Strong US Dollar, Trump and Fed Policy Lead to Recession or New Records in 2017?

10 days agoByYaki Kellmer

Donald Trump believe in the American economy and markets quickly concluded that if Trump would implement his policy, the result will be a trade-in of ‘buy stocks and sell bonds’. The instinct outcome of planning infrastructure projects propels stocks market and might lead to inflation, hence, rate hike probability increases.
Indeed, we saw a really impressive surge in stocks – the big question is already embodied – whether this trend will continue in 2017?

Dow Jones Trend since Trump's victory
Dow Jones Trend since Trump’s victory

There are a few risk factors that we should give them attention:

Presidential elections in France on April 23 indicate extreme right bloc and calls for a referendum of leaving the European Union.

Italy: Party of Five Star comedian Beppe Grillo quickly comes to power in elections and calls for a referendum on re-launching the Italian economy.

UK: negotiations with the EU of BREXIT go wrong. The target is at the end of March 2017, with EU aim to conclude by End-Oct 2018. Additionally, local Government Election in May 2017 might effect the British economy.

Germany: Federal election, Sep 2017.

China trade war – Trump has been piped a thing or two about China’s currency manipulation, the situation is that he wants to impose tariffs on imports from China.

The United States first budget policy will likely approve another short-term spending bill until the end of 2017 fiscal year in Sep, and the real and full-blown budget will be for 2018 fiscal year.

Trump raises doubts about the commitments of the United States throughout the world, ISIS exploits of US disengagement from the world, and strengthened interest rate hikes in 2017. The Fed is now penciling in +75bps hikes in 2017, up from +50bps indicated at the 20-21 Sep 2016 FOMC meeting, but maintained the projected +75bps hikes for 2018 and cut the forecast for 2019 to +75bps from +100bps previously.

US Interest Rate hike probability
US Interest Rate hike probability

As for currencies, US Dollar is expected to strengthen at the expense of other major and regional currencies:

Currencies Forecast
Currencies Forecast

with interest rate hikes, there is a need for U.S. economic recovery to begin exerting spillover effects that accelerate exports from emerging countries. That clear-cut economic recoveries are seen in emerging countries as well. However, in light of the sustained weakness of emerging countries currencies that occurred since the emergence of the upcoming Trump’s presidency, it appears that there are not so many forex markets participants who believe in that scenario.

Answers will be given later in the year when Trump will be sitting on the presidential chair.

Technical Analysis

Let’s focus on Dow Jones which during 2016 – reached new heights. The latest move was based on expectations, not on facts – buy the rumors, sell the facts.

I predict market correction to hit the markets, whether after January’s Trump’s inauguration or alternatively in March.

The amendment process could occur in two directions: The first option for a correction of 13-17% of the index value, a second option reflects more severe correction, of 20-30% of markets value.

Dow Jones Price Correction
Dow Jones Price Correction

From the technical side we can see few interesting points, step up could be at 20,300 points +_ or even further to 21,700 points +_

5

Financial markets reacted quite violently to Donald Trump – before and after his victory. The true test of economy, as for US  and global economy, starts on January 20.