Trumpflation setback sparks rush back into euro zone bonds

[DonViejo]

Source: Reuters



Mon Mar 27, 2017 | 11:38am EDT

By Dhara Ranasinghe | LONDON

Borrowing costs across the euro zone touched multi-week lows on Monday, as a legislative defeat for U.S. President Donald Trump on healthcare reforms raised questions about his ability to push through tax cuts and fiscal spending to boost the economy.

As investors reassessed the outlook for growth and inflation, analysts said bets that the European Central Bank could look to tighten monetary policy sooner rather than later were also being scaled back. Bond yields in Germany and France fell to their lowest levels in around three weeks, while U.S. 10-year Treasury yields tumbled to one-month lows.

Since November's U.S. election, expectations that large fiscal stimulus under a Trump administration would help push up economic growth and inflation have boosted risk assets and dented safe-haven bonds in the U.S. and Europe. But the healthcare bill was pulled from the floor of the House of Representatives on Friday because it failed to draw enough support from within Trump's Republican Party - throwing so-called "Trump reflation" bets into reverse.

Stock markets tumbled and the dollar slid to its lowest since November against a basket of currencies .DXY.

Read more: http://www.reuters.com/article/us-eurozone-bonds-idUSKBN16Y1XQ?il=0

[DetlefK]

1. Translation: The stock-market is enthusiastic for an economic boom that has yet to materialize.

Oh, think about all the jobs Trump will create.
Any time now.
Any time.
Any... time...

[ffr]

2. It's what we've all been saying. DIS-A-STER

We'll be lucky if the economic collapse isn't as bad as Bush's in 2007, when markets were in freefall and monthly job losses numbered in the 700,000s.

This is what red tRump voters wanted. And they're going to get it, we're all going to get it, in spades.

[DetlefK]

4. No, it won't be nearly as bad as 2008/2009.

The stock-market is going up because of unfounded confidence over economic growth in the future.

When that economic growth fails to materialize and the investments turn out to be unwise, the stock-market will "correct" downwards. It will overshoot a little bit and there will be a small but noticable stock-market dip. (My guess: A few months from now. Maybe a year. When it becomes obvious that healthcare and immigration aren't the only things Trump cannot do.)
And after the downwards-overshoot it will go back to a normal behavior.



The 2008/2009-crash happened because there were massive amounts of bonds circulating at inflated prices. When the real-estate market crashed, all those bonds suddenly became actually worthless.

[ffr]

5. IIRC, derivatives back then totaled something like $25T. Now it's $75T at one bank alone

Deutsche Bank.


Deutsche Bank, the one that was fined for Russian money laundering and sued by the U.S. to pay $7.2B for subprime toxic debt. The bank whose head of their Cyprus branch was Wilbur Ross, now our Commerce Secretary under pResident tRump and who has as one of its Russain depositors, a guy who bought one of tRump's properties at a profit to the pResident of $50M, then never moved into that property.



There is a decent amount of exposure if that $75T derivative house of cards falls apart and, some of it at least, will tie back to the man in the White House.

I'd say we'll be lucky if the coming recession won't be as bad as the one that started to unravel in 2007.

[yeoman6987]

3. Sounds like Europe wants the trump tax cuts but don't think he'll get them now.

[Dawson Leery]

6. If Europe continues to reject the far right populists, Europe

will be seen as a better deal (stability).