In addition to rounding up the week’s important issues in the financial markets, we’ve also added brief thoughts on what effects on wealth and investment management you should watch for, which we’ll continue to highlight each week.

Market Action:

As the U.S. and the rest of the world accustoms itself to the notion of a Trump presidency, the economic contrast has grown starker. In the U.S., jobs came in this week just shy of consensus, causing the unemployment rate to drop from 4.9% to 4.6% as hiring stayed steady and some workers left the workforce. The job gains offered another support to the argument that the U.S. is on solid footing along with GDP growth beating expectations, consumer confidence hitting nine-year highs, home prices finally rising above pre-crisis levels, manufacturing continuing its expansion, and household spending clocking in at consistent levels. OPEC’s decision to cut production globally also benefits U.S. energy firms, which have started to invest again for the first time in two years. Whereas equity markets have come to a consensus on steady profits, leading to inflows previously allocated to European assets, Treasury traders have a much wider range of opinions.

Even as the economy looks stronger, substantial uncertainty remains over key parts of Trump’s plans, in particular his plans to prevent outsourcing, his infrastructure plans, his tax plans, and his plans for trade. While he has threatened to punish companies that outsource jobs, which did lead Carrier to reconsider outsourcing plans, the overall strategy is not clear; despite his heroic efforts to keep Carrier in Indiana, the 1,000 jobs he saved pale in comparison to the 150,000 jobs in manufacturing that have left Indiana since 2000. On infrastructure, while the OECD has endorsed his proposed investments, the proposals look likely still to be major deficit spending. Trump’s team and Congressional Republicans also continue to send mixed messages on the future of tax reform. Finally, while Trump has promised to repudiate the Trans-Pacific Partnership on his first day in office, the reality of losing out to a Chinese alternative waiting in the wings that would diminish U.S. influence in the region could push him to reconsider.

Outside the U.S., the outlook continues to worsen. The U.K.’s Prime Minister Theresa May saw both an electoral setback that shows a loss of confidence in Brexit and backlash against her plans to change how business is done in Britain, but the economy inexplicably beat expectations for growth. The gains look to be short-lived though as the tone from the Continent on Brexit hardens. The European Union looks to be in no better shape with the ECB’s bond buying program causing minimal economic improvement as firms hoard cash and with Italian banks under pressure in light of an impending constitutional referendum even as they already grapple with insolvency. The Chinese government also has undertaken major steps to curb capital outflows to halt the weakening of the renminbi. Beijing has also started trying to decrease leverage in the financial and industrial sectors, but it relies for now on tenuous commodity price increases.

What to Watch:


The Polly Portfolio Team