Politics and policy driving markets - Deutsche Bank

Deutsche Bank's market research team has published The House View for February 2017.

Key Quotes:

"More than two weeks removed from President Trump’s Inauguration, politics and policy remain key market drivers. Tax cuts and deregulation are expected to jolt the economy toward a better long-term equilibrium of higher growth, inflation and interest rates. But the change in the administration also brings a greater degree of policy uncertainty. Politics remain the key risk in Europe, especially in the first half of the year, where we are more concerned about risks in Italy than France. While we do not expect a material negative macro impact this year, these developments bear close watching. Markets have started to price some of this risk."

"Despite these political uncertainties, global momentum has strengthened. Our global macro outlook remains largely unchanged, though: global growth should pick up only gradually this year, as the spillover from better US growth prospects is limited before 2018. The focus in markets has been on the underperformance of "Trump trades" – US equities stalling, the dollar softening, and rates declining. Positioning and the perceived lack of policy progress are behind this underperformance. Incoming newsflow on President Trump's policies will be an important driver from here, but cleaner positioning should allow for a resumption in Trump trades. Central banks have stepped back from the spotlight for the time being. But attention should return to monetary policy later this year, as the Fed considers changing its reinvestment policy and balance sheet easing could slow in the eurozone and Japan."