One of the main differences between 2016/2017 and the current situation after Trump's victory is the strengthening dollar. See Figure 1. In 2016, from mid-December to February 2018, the Dollar Index weakened by 14% - allowing for a coordinated global growth impulse (reflation trade).
But now the dollar is strengthening, and this is unlikely to help global growth... since September 27, the Dollar Index has already strengthened by 6.1%. According to DB economists, the implementation of Trump's announced policies could push the EURUSD currency pair even below parity to the level of 0.95!
So how sustainable is the Trump Trade (from a global perspective) if markets are pricing more of a "reversed reflation trade"?
Figure 2 shows the change in currency pairs since November 5, and Figure 3 since July 31, 2023.
However, there are many arguments in favor of a potential soft landing such as:
- record-high stock & home prices, tight credit spreads, rebounding M&A/issuance markets,
- the AI/data center boom, the Chips Act, the IRA, the Infrastructure Act, lower taxes for domestic manufacturers, deregulation,
- additionally next four years could see one significant accelerations in e.g. such industries like Space, AI, Energy, Biotech and Robotics.
Of course, there are also macro arguments in the other direction... but if the soft landing fails, I would rather bet on a "soft hard landing" than a "hard hard landing".
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