Increasing commodities prices and Trump’s pledge to invest $1trn into the US economy have fuelled speculation that we are at the beginning of a new cycle of global inflation.
Nomura Global Dynamic Bond manager Richard Hodges recently told Portfolio Adviser that he didn’t think Trump was the inflationary president some had predicted.
If he was, Hodges argued, then “government bond yields would be materially higher”.
The more likely scenario, he said, is global inflation and sluggish US growth leading to stagflation – a difficult scenario to tackle from either a fiscal or monetary perspective.
Investment Quorum CIO Peter Lowman said stagflation was a difficult call: “If you ask 10 managers you’ll get 10 different opinions. The markets are priced to perfection meaning any bad news can create a wobble.”
He added: “There are lots of uncertainties. In the UK, the Brexit outcome will be anyone’s guess, RBS has cut jobs and yet exports and company earnings have been strong.
“Similarly, Trump’s ‘America first’ mantra has ramped up the markets but he hasn’t actually done anything yet. US assets are highly valued but could easily fall.”
