We’re now three months into the new Trump administration and what have we learned (besides where to find Fox News and CNN instead of Bloomberg and CNBC on our TVs and radios)?
Taxes, infrastructure and regulations matter—maybe health care, too, to the extent it affects people’s opinions of the other three. What doesn’t matter to the markets? Travel bans, the Supreme Court, Russia tweets.
All that’s pretty much been noise to the markets—so far. It’s almost as if when Treasury Secretary Steve Mnuchin came out in late February and said we’re going to deal with tax reform in August, it gave a free call option to the risk markets.
Who wants to be short risk assets until we know how big the tax plan is going to be? But how patient will the market be as it relates to any deviance from this pro-growth agenda?
Will it care if it takes longer and is more painful to achieve than expected, i.e., politics as usual, or is the ultimate result all that really matters? We may have gotten a taste of the market’s thinking on this when the potential repeal-and-replace healthcare legislation was pulled last month before a vote.
The surprise move added only minimally to a modest risk-off trade, as the market appeared to all but ignore the breathless political dissections. It may well be we’re in a buy-the-rumor, sell-the-news environment. Until we see what’s in the news, the rumor can be pretty powerful.
This has the fixed-income market playing a waiting game while it watches for policy clarity. The first quarter saw a consolidation of gains made in last year’s Issue 27 May 2017 assetview.co.uk fourth quarter, when the market re-priced, with November’s election serving to intensify macro trends already in place. Since mid-December, when the Federal Reserve raised its target range 25 basis points, the 10-year Treasury has been trading in a relatively narrow band between 2.30-2.60%. Credit spreads have similarly been holding to a tight range.
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