Four scenarios for markets over Trump’s next 100 days
All Trump policy paradigms remain on the table, and our scenario analysis should serve as a useful framework for investors over the next 100 days
There's four scenarios for the next 100 days
One of the major issues facing investors is determining which Trump policy paradigm will prevail over the next 100 days. The reality is that all possibilities remain on the table. To shed some clarity, here are 4 paths that we think global markets could take:
- Muddling through: Markets adjust to a US economy at full capacity, while Trump stimulus hopes provide a buffer for US assets. Goldilocks environment for EM assets.
- Reflation recovery: The administration's (watered-down) pro-growth policies gain the backing of Congress, prompting a positive re-pricing of US growth expectations.
- Global monetary tightening: Simultaneous signals from the ECB and Fed over a change to their respective balance sheet policies sees a secular bearish steepening of global yield curves. A sharper bond market sell-off could dampen risk sentiment.
- Geopolitical Armageddon: Trump's quest for a ‘big’ foreign policy win leads to an escalation of geopolitical fears and risk-off behaviour in markets.
Four scenarios for global markets
Key takeaways
Our scenario analysis should serve as a useful framework for investors when it comes to navigating the next 100 days of Trump. Here are some key takeaways:
- The bond market implications are fairly intuitive: three out of the four scenarios point to a move higher in US 10-year yields (albeit to varying degrees).
- We have seen that global markets like a stronger US economy and can handle a bit of monetary normalisation pressures coming from a low base. So long as moves are orderly, we would expect this ‘nirvana’ market backdrop – where stocks and yields rise slowly in tandem – to continue. EM assets with a positive local story should stay resilient, though high-yielders remain vulnerable to a Trump-led rise in US yields.
- Geopolitics would be the only sting in the tail for a bearish US bond market outlook; our bell curve graphic shows that the probability of this is relatively low, but the consequences could be dire for markets that are positioned for a global recovery.
"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).