have markets become too excited about trump? · why markets might be too excited about...
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RGB= 230, 178, 209
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Financial and Economic Analysis Follow us @ING_Economics
Have markets become too excited about Trump? Our answers to this month’s big questions
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Colour Guidelines
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Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
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15% tints
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Positive and Negative
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Financial and Economic Analysis
Our top six themes this
month
Financial and Economic Analysis
Follow us @ING_Economics
Why the Fed will only hike twice next year
Why UK growth could fall by more than many expect
#1
#2
#3
#4
#5
#6
Why markets might be getting ahead of themselves on “Trumpflation”
Why stronger Eurozone activity won’t translate into higher 2017 growth
Our 2017 FX outlook A Brave New World
Italy has voted “no”, but there are many hurdles to overcome before an “Italexit”
Global Economics and Strategy Team
December 2016
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Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
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RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
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Financial and Economic Analysis 2
Markets herald new era of higher US growth and inflation
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US Inflation Expectations (5Y5Y Inflation Swap, %, lhs)
US 10 Year Term Premium (%, rhs)
Trump’s victory speech got markets downplaying fears of trade protection and playing up prospects of fiscal easing. Measures of inflation expectations have soared, and the US yield curve has steepened.
But is this justified?
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Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
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RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
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RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
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RGB= 242, 217, 232
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Financial and Economic Analysis 3
Trump: Who is this guy? S
oft
H
ard
Loose Even looser
Po
litic
al n
ati
on
alis
m
Macro policy
Tough Trump Trump Democrat
Home Trump Trump-Lite
ING base case – slightly expansionary – limited
protection – modest positive market
environment
Much more expansionary – inflationary. More stimulus. Markets seem to be pricing
this in currently
Little stimulus, lots of protectionism. Highly
deflationary – negative backdrop for markets
Protectionism likely to outweigh any stimulus measures – initial price
level rise, but essentially deflationary
We are gradually getting some clues on Trump’s policies via his cabinet appointments. But there’s still a lot of uncertainty of the exact details of his economic policies. Here are four, alternative positions that we think Trump could potentially take:
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Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
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RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
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Financial and Economic Analysis
Why markets might be too excited about “Trumpflation”
4
Timeline of key dates for fiscal stimulus
Trump elected
8th Nov 16
President’s budget
Feb-March
Fiscal year starts
1st Oct 17
Congress budget vote
Jul-Aug 17 Congress
adopt budget
May 17
FOMC meeting
14th Dec
Trump inaugurated
20th Jan 17
Senate revisions
June 17
President signs/vetoes
Sept 17
A more moderate fiscal expansion…
All fiscal decisions stem from the House of Representatives – this is full of fiscal conservatives
Tax cuts may be passed, but we expect much less appetite for extensive infrastructure plans
The “massive spending” suggested is unlikely
…which takes time to deliver
The process of setting a new budget is a time consuming one
It might take until mid-2017 for Trump’s wish list to be converted into law
Tangible results may only show by 4Q17
Markets could become impatient before then
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Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
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RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
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Financial and Economic Analysis
Why the Fed will only hike twice next year
5
Market expectations Around 1.5 hikes currently priced in
Inflation CPI to hit 2% in early 2017 but price pressures concentrated in shelter costs
Labour market Slowing but close to full employment
0
1 2
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Low neutral rate FOMC voter Bullard has said that Fed policy is 1 hike away from being growth-neutral
Fiscal policy If Trump unveils a very bold fiscal package, this could allow the Fed to move faster
Wages Slowly approaching pre-crisis levels
European politics Brexit or election-related shocks from Europe could adversely hit US financial conditions
Balance sheet If the Fed stops reinvesting proceeds of matured bond holdings, higher yields at the short end of the curve would reduce the need for hikes
Number of 2017 rate
hikes
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Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
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RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
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RGB= 248, 249, 226
RGB= 225, 239, 229
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Financial and Economic Analysis
Why UK growth could fall by more than many expect
6
Consumers hit by higher costs
Soaring inflation on higher import prices will hit household spending power, particularly given the weak outlook for wage growth.
1.0% ING’s 2017 UK
growth forecast
How our growth forecast compares:
1.4% Office for Budget Responsibility 1.2% Bank of England 1.2% OECD 1.1% Analyst consensus2
We expect further BoE easing in 2017
15bp Bank rate cut at May’s meeting
Investment set to slow
Brexit-related uncertainty has made firms more cautious. 58% of firms have said that investment will be lower due to Brexit.1
Exports won’t surge…
…despite sterling’s fall. The impact of political worries in Europe – the UK’s main export market – on growth, will act as a drag on trade.
1 Source: Deloitte 3Q CFO Survey 2 Source: Consensus Economics
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Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
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Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
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RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
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Financial and Economic Analysis
Brexit Transition: Avoiding a “cliff edge”
7
2017 2018 2019 2020 2021
Transitional period (no fixed length) UK maintains most/all single market features until full deal negotiated
or…
UK leaves single market and adopts new UK-EU terms or WTO rules
Netherlands Elections (15 March)
French Elections (April/May)
German Elections (TBC)
UK General Election (May 2020) Any transitional period may extend into the next parliament
Two year negotiations once Article 50 invoked Expected to begin in March 2017
PM May’s “cliff edge” comment hints at a transition period beyond the two year EU negotiations. Businesses are very keen for this, particularly in the City (where banks fear the loss of EU passporting).
But some hardline Brexiteers are opposed because they think it would, in practice, mean Britain retains what they see as the worst aspects of EU membership well into the next decade.
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Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
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No content below this point
Financial and Economic Analysis
It’s going to be a busy year in European politics
8
15 Mar Netherlands General election
5-8 Dec Supreme Court Brexit hearing
2017
“Early January” Brexit appeal result due
March Article 50 expected to be triggered by UK
French Presidential elections
23 Apr Round 1
7 May Round 2
11 May BoE Inflation Report We expect a rate cut
Aug-Oct German Federal election (Date to be set)
Italian Elections? Not confirmed, but Interior Minister has raised possibility
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
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Financial and Economic Analysis
Why stronger Eurozone activity won’t lift 2017 growth
9
The economy is showing resilience…
The Eurozone economy has been looking a bit
better recently, despite the Brexit vote and Trump’s
surprise victory
PMIs, hiring intentions, price expectations and new
orders indicators all point towards a stronger
economic outlook
…but political uncertainty will weigh on growth
The far-right may have been defeated in Austria, but the aftermath of Italy’s ‘no’ vote is uncertain
Throw in elections in Germany, France and The Netherlands, alongside noise surrounding Greek debt relief, and we think Eurozone growth will be a touch slower in 2017 than 2016.
1.6% 1.3% 2016 2017
ING’s Eurozone GDP growth forecasts
2017 dragged down by political uncertainty
Our ECB expectations
QE A 3-6 month extension of QE programme at current pace
Tapering Announced June 2017 earliest
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ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
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Financial and Economic Analysis
Italy has voted “no”. Here’s what could happen next
10
The “NO” campaign wins Italian Constitutional Referendum with 59.5% of the vote.
Matteo Renzi has tendered his resignation
The ball is now in President Mattarella’s court
Reject Renzi’s resignation This seemed possible pre-vote, but now looks very unlikely given large defeat
Form government based on current PD-led majority This looks most likely
Form “technocratic” coalition government This could include Berlusconi’s Forza Italia party
Call snap elections This could end up with no stable majority. Pres. Mattarella is likely to try and avoid this option.
Elections around the corner? A new government has two priorities: passing the 2017 budget and approval of a new electoral law. Pressure for fresh elections is building though, and could increase once these tasks are completed. Comments from a government minister this week suggested that elections could come as early as 1Q17.
ING Orange RGB= 255, 98, 0
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Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
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Financial and Economic Analysis
Does Italy’s “No” vote really signal a “Italexit”?
11
The long road to leaving the Euro….
Step 1: Italy elects Eurosceptic party (e.g. Five Star Movement
The Italian Constitution explicitly prohibits any referendum meant to repeal laws which ratified international treaties. In the past the Constitutional Court has often hinted that it would not be possible to interfere through a referendum on Italy’s obligations to the EU.
Step 2: Amend rules via a new constitutional law
Step 3: Seek approval from Senate and House of Deputies. Could take a long time and deliberations could be fraught – relies on 5* having strong majority in both chambers
Step 4: If vote fails to reach two-third majority in each house, law will be put to a constitutional referendum
Step 5: Despite referendum, law could still be blocked/slowed down by Constitutional Court
Path clear to leave
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
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No content below this point
Financial and Economic Analysis 12
It’s a brave new world. Here’s our key FX themes for 2017 Our 2017 FX outlook
Our EUR/USD forecasts
Our USD/JPY forecasts
• We expect the dollar to continue to strengthen in 2017, despite any efforts by the White House to talk down the currency.
• We forecast higher US treasury yields, which combined with peak Eurozone political pessimism, could drive EUR/USD lower and close to parity (1.00) in the first quarter of 2017
• High US yields will particularly hit those EM currencies that are bond-sensitive
• Stable Chinese policies and the global drive for infrastructure spending will support selected EM currencies later in the year – Brazil is a good example.
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ING
Forwards
Consensus
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1.02 1Q17 EUR/USD
Forecast
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
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Financial and Economic Analysis
Binary extremes: How’s Trump’s policy shift could affect USD
13
Our 2017 FX outlook
Paradigm 1
Trump global trade apocalypse
Paradigm 2
US escapes secular stagnation trap
Policy response from across the world
Implications for global markets
Implications for global growth
Dollar policy set by US Treasury
Monetary policy & Fed implications
Fiscal considerations for sourcing growth
Ideology for US economic stimulus
Enforcement of mercantilist and beggar-thy-neighbour policies
Monetary-financed fiscal expansion to overcome high debt headwinds
USD Depreciates
USD Appreciates
Accommodative Fed policy with scope for further balance-sheet expansion
Play ‘fast and loose’ with dollar policy
Risk of a global recession: withdrawal from NAFTA/labelling China an FX manipulator
would spark retaliatory protectionist moves
Heightened risk aversion and tighter global financial conditions
Broader retaliation including threat to sell US Treasuries
Running the economy hot: infrastructure spending boosts actual & potential growth
Conventional debt-financed fiscal stimulus (abiding to current fiscal discipline)
Fed allows a modest overshoot of 2% inflation target with gradual monetary
normalisation
New Treasury Secretary signals no change to current strong dollar policy
Risks to global growth tilted to the upside in a conciliatory US reflationary scenario
Global risk appetite remains buoyant as global yield curves gradually steepen
Global growth gently recovers, Fed can normalise policy
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis
Here’s how European politics could hit FX markets in 2017
14
Our 2017 FX outlook
Source: Bloomberg,.% change is risk-adjusted -0.06% -0.05% -0.04% -0.03% -0.02% -0.01% 0.00% 0.01% 0.02% 0.03% 0.04%
CHF/EUR
GBP/EUR
JPY
CHF
SEK/EUR
NOK/EUR
RON/EUR
GBP
NZD
CZK/EUR
CAD
AUD
EUR
SEK
CZK
NOK
HUF/EUR
PLN/EUR
HUF
PLN
Average % change in currency vs. USD on days when the gap between Italian and German government bond yields increased by > 1 standard deviation
Most sensitive currencies to European political risk:
G10 FX
NOK SEK
EMEA FX
PLN HUF
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis
It looks like it’ll be another bumpy year for GBP…
15
Our 2017 FX outlook
We think another layer of bad news around the triggering of Article 50 could prompt further GBP weakness.
We think the final leg of Brexit adjustment will see GBP/USD trough at 1.15 during 1Q17.
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17
GBP/USD spot rate ING forecast
Hard Brexit: large negative productivity shock Greater migration controls, depleted access to single market
Bre
xit trad
e-o
ff
Soft Brexit: small negative productivity shock Limited migration controls, substantial access to single market
Source: Bloomberg, ING forecasts
ING’s GBP Forecasts
4Q16 1Q17 2Q17 3Q17 4Q17
GBP/USD 1.21 1.17 1.22 1.23 1.27
EUR/GBP 0.87 0.87 0.90 0.90 0.88
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis 16
Our global forecasts
2016F 2017F
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
United States
GDP (%QoQ, ann) 0.8 1.4 3.2 2.2 1.6 3.0 2.7 3.4 3.6 2.8
CPI headline (% YoY) 1.1 1.1 1.1 1.7 1.3 2.3 2.3 2.6 2.7 2.5
Federal funds (%, eop) 0.25 0.25 0.25 0.50 0.50 0.75 0.75 1.00
3-month interest rate (%, eop) 0.62 0.65 0.83 1.01 1.14 1.17 1.41 1.33
10-year interest rate (%, eop) 1.77 1.47 1.59 2.30 2.60 2.20 2.50 2.70
Eurozone
GDP (% QoQ, ann) 2.1 1.2 1.1 1.5 1.6 0.7 1.5 1.8 1.8 1.3
CPI headline (% YoY) 0.0 0.0 0.3 0.6 0.2 1.1 0.8 0.9 1.2 1.0
Refi minimum bid rate (%, eop) 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3-month interest rate (%, eop) -0.22 -0.26 -0.30 -0.31 -0.31 -0.32 -0.32 -0.32
10-year interest rate (%, eop) 0.15 -0.13 -0.05 0.30 0.30 0.35 0.50 0.70
Japan
GDP (% QoQ, ann) 2.1 0.7 2.2 0.8 0.6 0.7 0.5 0.7 0.9 0.7
CPI headline (% YoY) 0.1 -0.4 -0.3 0.0 0.3 0.5 0.8 0.9
Excess reserve rate (%) -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
3-month interest rate (%, eop) 0.09 0.06 0.04 0.02 0.05 0.05 0.05 0.05
10-year interest rate (%, eop) -0.09 -0.01 -0.08 0.00 0.00 0.00 0.00 0.00
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis 17
Our global forecasts
2016F 2017F
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
China
GDP (% YoY) 6.7 6.7 6.7 6.6 6.7 6.6 6.5 6.4 6.4 6.5
CPI headline (% YoY) 2.1 2.1 1.7 1.8 1.9 2.0 2.0 2.0 2.0 2.0
PBOC 1yr deposit rate (% eop) 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50
PBOC 1yr best lending rate (% eop) 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35
7-day repo rate (% eop) 2.90 2.71 2.60 2.75 2.75 2.75 2.75 2.75
10-year T-bond yield (%, eop) 2.89 2.88 2.75 2.80 2.80 2.80 2.80 2.80
UK
GDP (% QoQ, ann) 1.7 2.7 2.0 2.0 2.1 0.9 -0.2 0.2 0.8 1.0
CPI headline (% YoY) 0.3 0.4 0.7 1.2 0.6 2.2 2.9 3.0 3.1 2.8
BoE official bank rate (%, eop) 0.50 0.50 0.25 0.25 0.25 0.10 0.10 0.10
BoE Quantitative Easing (£bn) 375 375 435 435 435 435 435 435
3-month interest rate (%, eop) 0.60 0.60 0.30 0.40 0.40 0.25 0.25 0.25
10-year interest rate (%, eop) 1.50 1.60 0.65 1.20 1.00 1.40 1.40 1.60
FX & Oil
EUR/USD (eop) 1.10 1.11 1.12 1.05 1.02 1.10 1.11 1.12
USD/JPY (eop) 112 103 101 112 118 115 118 120
USD/CNY (eop) 6.45 6.65 6.67 7.00 7.20 7.00 6.85 6.80
EUR/GBP (eop) 0.80 0.84 0.88 0.87 0.87 0.90 0.90 0.88
Brent Crude ($/bbl, avg) 35 47 47 50 45 45 45 45
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis
Get in touch
18
Developed Markets
London
Mark Cliffe Head of Global Markets Research 44 20 7767 6283
Rob Carnell Chief International Economist 44 20 7767 6909
James Knightley Senior Economist, UK, US, $ Bloc 44 20 7767 6614
James Smith Economist, Developed Markets 44 20 7767 1038
Chris Turner Global Head of Strategy and Head of EMEA and LATAM Research
44 20 7767 1610
Petr Krpata Chief EMEA FX and IR Strategist 44 20 7767 6561
Viraj Patel Foreign Exchange Strategist 44 20 7767 6405
Padhraic Garvey Global Head of Debt and Rates Strategy
44 20 7767 8057
Aengus McMahon Head of European High Yield Research
44 20 7767 8044
Juan Carrion Analyst, High Yield 44 20 7767 8379
Amsterdam
Maarten Leen Head of Macro Economics 31 20 563 4406
Teunis Brosens Senior Economist, Eurozone 31 20 563 6167
Bert Colijn Senior Economist, Eurozone 31 20 563 4926
Dimitry Fleming Senior Economist, Netherlands 31 20 576 0465
Raoul Leering Head of International Trade Analysis 31 20 563 4407
Jeroen van den Broek
Head of DM Strategy and Research 31 20 563 8959
Maureen Schuller Head of Covered Bond Strategy and Financials Research
31 20 563 8941
Martin van Vliet Senior Rates Strategist 31 20 563 8801
Benjamin Schroeder Senior Rates Strategist 31 20 563 8955
Quentin Gilletta de Saint Joseph
Debt Strategist 31 20 563 8957
Hamza Khan Head of Commodities Strategy 31 20 563 8958
Warren Patterson Commodities Strategist 31 20 563 8921
Suvi Platerink Kosonen
Senior Credit Analyst, Banks 31 20 563 8029
Marina Le Blanc Credit Analyst, Financials 31 20 563 8094
Nadège Tillier Senior Credit Analyst, Utilities and Energy
31 20 563 8943
Hendrik Wiersma Senior Credit Analyst, TMT 31 20 563 8961
Job Veenendaal Credit Analyst, Consumer Products and Retail
31 20 563 8956
Roelof-Jan van den Akker
Head of Technical Analysis 31 20 563 8178
Brussels
Julien Manceaux Senior Economist, France, Belgium, Switzerland
32 2 547 3350
Philippe Ledent Senior Economist, Belgium, Luxembourg
32 2 547 3161
Steven Trypsteen Economist, Ireland, Portugal 32 2 547 3379
Geoffrey Minne Economist, Spain 32 2 547 3386
Frankfurt
Carsten Brzeski Chief Economist, Germany, Austria 49 69 27 222 64455
Inga Burk Economist, Germany, Austria 49 69 27 222 66131
Milan
Paolo Pizzoli Senior Economist, EMU, Italy, Greece 39 02 55226 2468
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis
New York
Gustavo Rangel Chief Economist, LATAM 1 646 424 6464
London
Dorothee Gasser-Châteauvieux
Chief Economist, EMEA 44 20 7767 6023
Nicholas Smallwood Senior Emerging Markets Credit Analyst
44 20 7767 1045
Prague
Jakub Seidler Chief Economist, Czech Republic 420 257 47 4432
Budapest
Péter Virovácz Senior Economist, Hungary 36 1 235 8757
Manila
Joey Cuyegkeng Senior Economist, Philippines 632 479 8855
Warsaw
Rafal Benecki Chief Economist, Poland 48 22 820 4696
Piotr Poplawski Senior Economist, Poland 48 22 820 4078
Jakub Rybacki Economist, Poland 48 22 820 4608
Karol Pogorzelski Economist, Poland 48 22 820 4891
Bucharest
Ciprian Dascalu Chief Economist, Romania 40 31 406 8990
Silviu Pop Junior Economist, Romania 40 31 406 8991
Get in touch
19
Emerging Markets
Moscow
Dmitry Polevoy Chief Economist, Russia and CIS 7 495 771 7994
Egor Fedorov Senior Credit Analyst, Russia and CIS 7 495 755 5480
Singapore
Tim Condon Head of Research & Chief Economist, Asia
65 6232 6020
Prakash Sakpal Economist, Asia 65 6232 6181
Istanbul
Muhammet Mercan Chief Economist, Turkey 90 212 329 0751
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
Colour Guidelines
ING Mid Grey RGB= 118, 118, 118
Text Colour only RGB= 51, 51, 51
Primary colours
Background colour & 3rd Grey where needed RGB= 240, 240, 240
ING Orange RGB= 255, 98, 0
ING Light Grey RGB= 168, 168, 168
ING Indigo RGB= 82, 81, 153
ING Sky RGB= 96, 166, 218
Primary chart colours
ING Fuchsia RGB= 171, 0, 102
ING Lime RGB= 208, 217, 60
ING Leaf RGB= 52, 150, 81
RGB= 151, 151, 194
RGB= 160, 202, 233
RGB= 205, 102, 163
RGB= 227, 232, 138
Secondary chart colours
RGB= 133, 192, 151
RGB= 203, 202, 224
RGB= 207, 228, 244
RGB= 230, 178, 209
RGB= 241, 244, 196
RGB= 194, 223, 202
RGB= 229, 229, 240
RGB= 231, 242, 249
RGB= 242, 217, 232
RGB= 248, 249, 226
RGB= 225, 239, 229
60% tints
30% tints
15% tints
ING Minus RGB= 255, 0, 0
Positive and Negative
ING Plus RGB= 52, 150, 81
Map Base Colour
RGB= 217, 217, 217
No content below this point
No content below this point
Financial and Economic Analysis
Disclaimer This publication has been prepared by ING (being the Wholesale Banking business of ING Bank N.V. and certain subsidiary companies) solely for information purposes. It 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 this date 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 publication. All rights are reserved. The producing legal entity ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is subject to limited regulation by the Financial Conduct Authority (FCA). ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. ING Bank N.V. London Branch. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.
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