“And the higher bond yields also reflect the fact that a Trump presidency may well be inflationary,” believes James Carrick, a global economist at LGIM, the asset manager. A more dovish than a previously expected Federal Reserve could lead to inflation spiralling just as we are entering a wage growth cycle, says Carrick. “The Fed believes more people coming back to the labour market, as we’ve been seeing recently will keep wage growth in check, but our research shows that wages are already rising when that happens. The Fed therefore risks keeping rates too low for too long.”
Trump’s anti-immigration policies could add more fuel to the inflation fire. “Immigration is responsible for all growth of the labour force in the US, which stands at 0.25% pa over the next 10 years if immigration policies remain unchanged.”
Lower labour force growth as a result of a Trump win, in combination with protectionist policies, will lead to lower US economic growth in the longer run, according to Carrick. That’s also what Neuberger Berman, an American asset manager led by Clinton supporter George Walker, fears. The company fears for the consequences if Trump’s “tries to depose” Fed chair Janet Yellen, a possibility he has previously hinted on.
“A concerted ‘sell-America’ trade is a distinct possibility,” warns NB CIO Joe Amato. “Nonetheless, we believe the Brexit playbook is useful here. Market volatility may endure for a little longer, but as it does so, it could deliver buying opportunities,” he says. But for such possibilities to emerge, Trump will first have to shake the markets a little bit more. Given his track record, he will probably deliver on that sooner rather than later.