Can politics and central banks derail the ongoing recovery?

Insight
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23 de septiembre de 2016

Key points

  • A surprisingly benign summer despite Brexit and ongoing modest recovery should not leave room for complacency.

  • Central banks remain at the centre of market focus but expectations may be too high: while the Fed signals modest tightening, and the BoJ a stabilisation of accommodation, we expect only a modest ECB move in December. Markets may soon question central banks “new normal”.

  • Political risks will slowly take the front stage, primarily with the US Presidential Elections coming into focus. While some risk-off reaction is possible, markets may see a Trump election as lifting short-term economic activity and boosting corporate profitability which could support the dollar. Italy’s referendum will follow suit but too late for the bank topic to come back in 2016.

  • In this context, we remain underweight in equities and neutral in rates. We keep faith in credit, supported by a global search for yield and strong technicals in Europe. We have concerns about bouts of volatility ahead.

Over the summer we published research covering the upcoming Presidential Elections on 8 November. We considered the states of the polls, the candidates and their proposals and looked at different post-election scenarios considering their economic and financial market impacts2. Since then we have seen several developments...

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