Mid term report

Many people may not like Trump, but they do appear to be respecting what he is achieving as President. We had a Trump stock market bump post his election and the result of the midterm elections gave equity investors another boost. The result itself, was for a change, correctly predicted by opinion polls. The Times on Thursday suggested the results were so positive for the Trump camp that he may get another four years in the job. Two areas the Democrats and the Republicans agree on are infrastructure spend and further reforming the tax system. Both could further boost the economy.  The area of concern if the Democrats fail to approve the increase in the debt ceiling. This could lead to an extended government shut down. However, would the Democrats really want to the catalyst for this event? Not so sure. Alongside could the Democrats push further again to impeach Trump? Economies often do better if governments leave well alone if the result in the mid-terms does provide something of a gridlock that may not ultimately impact the US economy in a material way.

The other main event of the day was the monthly US interest rate decision, as expected no change. December seems an almost certainty. The US dollar rallied, however, US interest rates were little changed. Equities left little changed as was the Vix index.

Oil fell into bear market territory on Thursday, as defined by a 20% fall from the peak. If ever there is an asset class that no-one seems able to forecast the direction of, it is oil. When the price hit 75 dollars a barrel recently the bull argument was in full flow, all the ducks were getting lined up for a further rise, 100 dollars the next stop. Middle East political concerns, shale gas bottlenecks and the state of the Venezuelan economy contributing to the bull argument.  Hedge funds were bullish apparently. The question is now, is this a sign of a weakening global economy as demand is falling or will the drop in the price help consumers once again stimulate the economy. It could be both, the oil price is falling due to a weakening demand, helping consumers and follows on improving the outlook for the global economy. What is certain is the global economy does better when the oil price is low rather than high.

Posted on November 9, 2018 .