Here Are The Biggest “Post-Trump” Market Risks According To Bank of America

As BofA’s rates strategist Ralf Preusser writes in a note this morning, “not even a month since the US election and markets seem unrecognizable” adding that the Trump election represented a paradigm shift. Fiscal easing would take over from monetary easing and would allow for the dollar and rates to rise in unison, a trend not seen for a while. The bank notes that whilst the direction of the moves since the election is in line with its expectations and forecasts, “the speed has come as a surprise.” and while fundamentally the repricing has further to go, especially in light of OPEC’s decision to end the price war within the cartel, there are red flags emerging among which vulnerability of EMs, and the reaction function of the PBOC, while warning that investors should not forget that premature tapering by the ECB risks exposing the Euro area’s fault lines again.
Below is a summary of what BofA’s Preusser lays out as the key risks to the “post-Trump” market:
EM, China and Europe remain risks to central scenario
With no additional clarity on the policies that President-elect Trump will pursue once in office, it is worth revisiting some of the risks to our central scenario. The vulnerability of EM, and in particular the reaction function of the PBOC, is a concern. At the same time, investors should not forget that Europe continues to dance to a different inflation tune, and that any premature tapering by the ECB risks exposing the Euro area’s fault lines again.

This post was published at Zero Hedge on Dec 5, 2016.