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Trump is inflationary

"A Trump presidency will not just inflate Trump’s ego, we believe his policies are likely to inflate prices also."

Donald Trump, and the Republicans controlling both the House and Senate, is the result that stockmarkets least expected. However, the initial negative reaction in financial markets is being quickly reversed as stockmarkets realise the longer term implications. While many Asian stockmarkets knee-jerked a long way lower in the shock of the moment, as people have come to make considered assessments, the reaction seems more rational.

What we can know is that his policies will be broadly inflationary, whether it is his protectionist policies, controlling immigration or investment in infrastructure, all point to a more inflationary tendency. Demand is likely to be higher for natural resources as a consequence of the infrastructure spend he is likely to make, although we doubt he will be building a wall between the US and Mexico.

If he manages to introduce tariffs on certain imports, this will also lead to higher prices in the US. That said, it’s not clear whether he will be able to implement such policies as the rest of his party are very pro-business and vested interests will be strongly against anything that damages US business interests.

He also wants to control immigration, particularly illegal immigration. Clearly, the effect of immigration is to put downward pressure on wages, so it is also inflationary.

As a populist he is certain to favour policies, in whatever area, that benefit the masses or at least are perceived to do so. In general, history would show that populist leaders are often inflationary as they pursue policies which stoke final demand, and improve growth and wages. While we doubt he is likely to be as populist as certain Southern European or Latin American leaders of the past, we expect the tone to move in that direction.

So in conclusion, we see that the election of Trump will be broadly supportive of stockmarkets and negative for bonds in the medium term although this is not guaranteed. 

David Jane  
Fund Manager - Miton Multi Asset Team

The value of stockmarket investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice.
Important information

The value of stockmarket investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice.

Source for information: Miton as at 09/11/2016 unless otherwise stated.

Miton has used all reasonable efforts to ensure the accuracy of the information contained in the communication, however some information and statistical data has been obtained from external sources. Whilst Miton believes these sources to be reliable, Miton cannot guarantee the reliability, completeness or accuracy of the content or provide a warrantee.

Issued by Miton, a trading name of Miton Asset Management Limited the Investment Manager of the Fund which is authorised and regulated by the Financial Conduct Authority and is registered in England No. 1949322 with its registered office at 6th Floor, Paternoster House, 65 St Paul’s Churchyard, London, EC4M 8AB.

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