Capital markets in America must wait till later on Wednesday to react to Donald Trump’s address to Congress, as he began as the American markets closed on Tuesday. Before he commenced, equity and bond markets were little moved during open hours. Earlier in the day the second estimate for fourth quarter US GDP was released, confirming the US economy grew at 1.6% in 2016, the slowest pace in five years, however consumer confidence remains robust, according to the latest Consumer Board report. The Dow Jones recorded its 12-successive day of gains on Monday.
The speech is one of the most anticipated of a president in living memory, and the new president will be aware that Wall Street will expect him to deliver on substance as well as rhetoric. Amongst other subjects, particularly taxation, he is predicted to offer some insights on how the Republicans intend to amend Obama care. Virtually every president in living memory has looked to address the health care system in the US, and yet not one appears to have come up with a solution to suit everyone. The president is also rumoured to be announcing an increase of $54bn in defence spending, or some may argue where President Trump is concerned, it could be called attack spending.
As the equity markets continue to trade in tight ranges, a report out from JP Morgan today says this is the first time since 1966 that the US equity market has not reported a gain or loss of more than one pct. in the first two months of the year. However stock to stock correlation is at its lowest for level since the late 90’s. As active managers have lost funds to passive investments over the years, this change has at least helped about half the active managers beat there benchmarks this year so far, up from 19% last year.
Finally, what appears is a case of stating the obvious Gertjan Vlieghe, a member of the Bank’s Monetary Policy Committee, stated this week that the Bank of England will not be able to forecast the next recession or financial crisis. Surely by definition they cannot forecast any recession until it’s too late, if they could they would do something to prevent it occurring. Healso went to explain that if people were to expect the economy to conform to the Banks expectations, they will be sadly disappointed. Anyone who treats the Banks forecasts for any future modelling have only themselves to blame. Not only can the Bank not forecast the next recession, they also seem to find it very hard to forecast one quarters economic growth from the last.