USA: A powerful positive consensus

USA: A powerful positive consensus

Sentiment has turned surprisingly fast in favour of an upbeat US economic outlook after Trump’s win of the Presidential elections. A number of good economic data are contributing to a positive US consensus. The underlying forces in this environment for a positively biased US view are quite powerful.

The prospect of public spending and tax cuts under Trump is realistic. Despite the general absence of specific proposals in this regard, the Republican majority in both houses of Congress makes the fiscal boost narrative of a Trump presidency quite convincing. At the same time, key economic data surprised positively.

Much better durable goods orders, more upbeat consumer sentiment and positive indications when it comes to this year’s Christmas shopping season, including Black Friday and Cyber Monday sales, have been reported in the last week. The rare combination of Trump’s fiscal boost and upbeat economic data creates a positive outlook.

The self-limiting forces in this environment should occur from a strengthening US dollar and from higher interest rates. Both contribute to a tightening of monetary conditions, which should correct optimism at some point. Nevertheless, this week is expected to deliver US data, which are suitable to feed the positively biased view further.

The second reading for growth of US gross domestic product in Q3 is highly likely to result in an upward-revised rate. For November, the manufacturing Institute for Supply Management (ISM) reading is expected to signal accelerating growth ahead and robust non-farm payrolls on Friday will strengthen the case for rising Fed funds rates.

US consensus









David Kohl is chief currency strategist and head Economist Germany at Julius Baer

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