Back to life, back to reality

It was a very busy week with the weekend press full of the implications of a Trump second term. One can easily see how investors have anticipated the diverse effects of an impending Trump presidency by the varied performance it has had on global stock indexes. The S&P 500 powers to new heights; in contrast, since early September, when the odds on him retaking offices increased, the Euro first 300 is essentially unchanged, and the FTSE 100 is down around 4% from its peak. The impending threat of tariffs on luxury goods and cars has the world in a spin. The next question for US investors is whether they are heading for irrational exuberance as they back this new era of tax cuts and deregulation for the US economy. According to FactSet, the US equity market, which was not considered cheap a few weeks ago, now trades on over 22x forward earnings. Those investors who backed the ESG revolution had a tough time this year, and the past week’s events did them no favours. COP 24 is due to start this week; how will the participants address the apparent waning of interest from industry and portfolio managers to investment in climate change?

The other big news, or some argue slightly underwhelming news, was the confirmation from Chinese authorities of a 1.4 trillion dollar stimulus package to tackle local government debt problems while signalling more economic support would come next year. One almost gets the sense that no matter how big the package was, the market would have asked for more. So far, Chinese authorities have made little comment on the potential impact of a new Trump presidency.

Looking to the week ahead, which will probably not be as exciting as the one we just had. On Tuesday we get some German inflation data, which is forecast to climb modestly to bang on 2%. We get a raft of employment data including the unemployment rate and average earnings for the UK economy, the implications on employment from the recent budget will not be seen in these numbers. The big one will be the monthly inflation data on Wednesday for the US economy, in which both the core and the non-core are expected to remain above the Fed’s 2% target. Producer prices and employment data on Thursday will also be keenly watched. Prices staying high and a worse-than-anticipated jobless claims report could take the steam out of the US investor’s sails. Then on Friday its back to the UK for a series of data points on the UK economy, we get prelim estimates for Q3 GDP, monthly industrial and manufacturing production along with construction orders. Again, this data may be a bit too recent to gauge any impact from the recent budget. After all last week’s hype, it’s back to economic reality for investors this week. Stocks in Europe, at least, are starting the week on the front foot.