It’s the time in the cycle when everything that happens in markets is tied back to politics. I looked at Trump trades on Thursday and aside from some pockets, it’s tough to make the argument that’s the major driver, let alone in stocks or bonds.
But how about the biggest market in the world? One of the consensus is winners on a Trump win is the US dollar, in large part due to higher deficits. If markets were pricing in a higher chance of a Trump win, that should boost the dollar. And what’s happened in the past month? The dollar has rallied alongside Trump’s odds.
Yet Bank of America thinks that’s correlation, not causation. They highlight the Fed 50 bps as the driver as it delivered a Fed put, snuffed out the recession trade and boosted the odds of inflation and a higher Fed funds rate down the line. Moreover, the economic data after the decision was also stronger than almost anyone thought it would be, including a big upside revision to GDI.
They say the rally in the dollar is consistent with improving fundamentals, not politics.