Two weeks ago, Wall Street analysts raised their forecasts hoping that Donald Trump would reduce corporate taxes, soften regulatory standards and increase fiscal spending. However, in his first week as president of the United States Trump focused on migration and trade patterns, which resulted in reassessment of the situation by many analysts.
Goldman economist Alec Phillips identifies three key reasons for caution:
1. Problems with the elimination of «Obamacare»
“Recent difficulties the Republicans in Congress have faced, trying to nullify “Obamacare”, do not forebode well for reaching a compromise on tax reform and infrastructure spending, while fiscal stimulus is likely to be seen already in 2018″, – Phillips notes.
2. Polarization of political parties
Migration Trump’s decree banning the entry into the United States for citizens of seven Muslim countries caused a strong reaction in Washington, alienating Republicans and Democrats even further.
Thus, a number of issues, which solution requires the support of both parties is likely to hang in the air, Phillips said.
3. Disruptions in the market
President Trump’s focus on immigration and trade may have a negative impact on Wall Street and the corporate sector.
“A number of recent administrative steps have made it clear that the president intends to fulfill his promises on trade and immigration, which could affect the markets and the real economy”, – concludes Phillips.
Collapse of the dollar is possible, like it was in 1980
History may repeat a year later already, as the excessive growth of the dollar has made it vulnerable to collapse, said David Marsh, co-founder of Official Monetary and Financial Institutions Forum.
The dollar has been adding approximately 10% per year in real terms in the last 3-4 years, he explained, that was contrary to the objectives set by Donald Trump.
“The currency will continue strengthening for another year, and then will collapse, as in early 1980”, – he predicts.
Last week the dollar sank from 14-year highs near 103.82 to 99.233. However, in the short term, the currency will recover the lost positions, which would go against the intentions of Trump.
Marsh’s opinion contrasts with judgments of analysts, whose mood is more “peaceful”, including Patrick Bennett of CIBC, who believes that the US economy will be able to cope with the rising dollar.
However, according to Tai Hui, chief strategic specialist of JPMorgan Asset Management, weakening of the dollar, which occurred last week, is a consolidation after a very rapid growth as a result of Trump’s victory in the elections.