Fiscal Policy
Rising bond yields may present an even greater danger to the global economy than the trade war. With equity valuations no longer discounting much economic risk, investors should position themselves defensively.
Trump’s signature bill is surprising to the upside with budget deficits, as predicted. Some version is guaranteed to pass – but higher bond yields and inflation will weigh on the economy and stock market.
Stocks will continue to struggle in the second quarter as President Trump tries to implement tariffs. Tax cuts will only temporarily dispel growth fears, if at all. Middle Eastern instability will add oil price surprises to an environment that is looking fairly stagflationary.
This report is a quick take on our views on UK bonds and FX, given the recent budget.
The fiscal stimulus announced at this year’s National People’s Congress is only slightly larger than last year’s. Notably, the details of the measures suggest that it will be challenging for fiscal stimulus to effectively counterbalance the country’s economic difficulties this year.
Questions about fiscal risks and their impact on bond markets have become more frequent in client conversations. This Special Report provides a framework to assess a country’s fiscal sustainability and how it affects its bond market outlook. On an individual country basis, Spain has shown a remarkable turnaround in its fiscal sustainability outlook while the fiscal outlook for France continues to deteriorate.