What lies ahead of Trump's 100-days?

May 2017

What lies ahead of Trump's 100-days?

As President Trump's "First 100 Days" in White House draw to a close, markets will be watching closely as much uncertainty remains about the policy outlook in the US.

  • Less risk of a significant US-induced trade war. Concerns over a very aggressive US stance on international trade have receded somewhat, in part because the US Treasury did not label China a currency manipulator, even though Citi analysts caution that it is still 'early days'.
  • But selective trade measures remain likely. The US Administration has taken a number of protectionist measures recently, including countervailing duties on Canada, investigations on steel and likely aluminum industries, as well as a potential executive action notifying of the US intent to withdraw from the North American Free Trade Agreement (NAFTA). We note that such announcements could be part of a negotiating strategy to achieve a more beneficial trade arrangement for the US.
  • Indeed, President Trump has indicated in recent days that he does not intend to withdraw from NAFTA "at this time", with all three parties agreeing to start renegotiation of the deal.
“Congress may pass tax reform in late 4Q17/1Q18 which may have a modest positive impact on the US economy”

Goals of "Major" Tax Reform

  • The primary focus of the US administration is now on tax reform. The Trump administration released a rough framework regarding its tax-reform plan on 26 April. It is aimed at reducing the corporate tax rate to 15.0% and trimming the number of individual tax brackets to three from seven, with the top rate expected to be 35%.
  • Citi analysts continue to expect Congress to pass tax reform in late 4Q17/1Q18 which is expected to have a modest positive impact on the US economy of 1-1.5pp of GDP over 2018-2021.

USD: Modest Near Term Downside

Citi analysts expect modest near term USD downside over 0-3 months followed by a bounce of 2-3% over 6-12 months.

  • The USD has been broadly trading a range since early last year and Citi analysts believe this may continue. Over the short term, delayed tax reform/ fiscal stimulus and associated lower yields may see modest USD losses over 0-3 months. As US fiscal issues return to the fore later this year, the USD may gain some ground again.
“Modest near term USD downside over 0-3 months followed by a bounce of 2-3% over 6-12 months.”

DM & EM - Forecasts Paths

  • Citi analysts forecast EUR/$ at 1.10 over 0-3 months now that Macron has won the French Presidential Election. Over 6-12 months, Citi analysts see EUR returning to a 1.00-1.05 range reflecting mainly a stronger USD though a risk-off event surrounding an unexpectedly hard taper by the European Central Bank could hurt EUR too.
  • Sterling gains can probably continue near term as UK political uncertainty drops with a probable significant increase in PM May's Parliamentary majority after 8 June. But Brexit negotiations are unlikely to be easier after this poll and could still hurt Sterling medium term.
  • Commodities generally continue to trade poorly since mid-February and more recently geopolitical risk has increased whilst the global reflation trade has waned somewhat. As such, the risks for the CAD, AUD and NZD are skewed a little lower in the shorter term.
  • EM FX is likely to weaken slightly medium term, in Citi's view. A debate on the US border adjustment tax may resurface later this year and could put downward pressure on the EM FX. Citi analysts see USD/CNY at 7.09 in 6-12 months.

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