Phoyto of grain bins and grain dryer near Pine Bluff, Ark.

Trumponomics: Markets anticipating presidential leadership

Regaining economic momentum will be the first challenge the new administration faces along with other world leaders.

For President Trump, Congress and the Federal Reserve the heavy lifting now begins as they partner with their respective global counterparts.

  • All countries globally have been facing similar challenges: chronic slow growth; low to negative interest rates; rising debt; and building populists’ movements - a primary symptom of economic chronic weakness in country after country around the world.
  • The first priority, accelerate the reflation process to regain economic momentum.
  • Without regaining economic momentum domestic and global leaders cannot adequately address the causes of the world’s current financial ills of almost a decade.

Fiscal and Monetary Policy – Near Term Game Plan

  • Accelerated move away from:
    • A chronic low inflation to an aggressive simulative reflation economic setting
    • S. Central Bank’s monetary accommodation to managing economic activity in a rising interest rate environment

Domestic & Global Economy: Glass Half Full or Half Empty?

  • Glass Half Empty: This is the period I acknowledge as pre-2016, before reflation efforts became increasingly aggressive. It was the period of building chronic slow growth, low to negative interest rates, low inflation, and building debt. A continuation of status quo fiscal and monetary policy would have allowed global deflationary forces to destabilize economic activity in the world’s economies. As pointed out in a Tweet:
    • Central Banks are trapped by math.
      • If they raise the rates the Central Banks destroy debtors and asset markets.
      • If they keep rates at zero the Central Banks destroy pension funds, banks and insurers.
        • Simon Mikhailovich @S_Mikhailovich
      • Fiscal policymakers were trapped by a strong belief among many of their constituents to maintain fiscal responsibility without fully understanding the building domestic and global economic paralysis. Germany and the European Union in general embraced fiscal responsibility and austerity to an extreme, which in part has and continues to undermine their future.   
    • Glass Half Full:
      • 2016 was a busy year domestically and globally for fiscal and monetary policy activities. Governments and Central Bank’s simulative and accommodative activities to alleviate chronic slow growth and low to negative interest rates are presently showing positive results.
      • Couple that with present expectations, anticipation, and belief that the U.S. Presidential, Congressional, and Central Bank Leadership in tandem with their global counterparts will accelerate and build on 2016 accomplishments, then 2017 is setting up to be an interesting transition year.

How President Trump provides his leadership in the policy arena related to Fiscal, Monetary, Regulatory and Trade Policies is all important.

  • Trump, Policy, Markets, January 17, 2017, by David R. Kotok, Chairman and CIO at Cumberland Advisors says.
    • As Don Rissmiller of Strategas Research Partners succinctly points out, “There are four types of government policy that can be used to steer the economy: 1) monetary policy, 2) fiscal policy, 3) regulatory policy, and 4) trade policy.”
      We will use Don’s framework for today’s discussion. Monetary comes first.
      After eight years of zero-interest-rate policy, the United States’ central bank finally raised its policy interest rate by a quarter point in 2015 and by a second quarter point in 2016. For the last 10 years, the Fed has missed on all of its forecasts of inflation (PCE) and unemployment (U3) and growth (GDP). The originally famous dot plot has become infamous, and one member of the FOMC did not even hazard a forecast as of the last meeting. (See “December FOMC Minutes,” by Bob Eisenbeis: com/december-fomc-minutes/.)  
      Markets seem to be expecting two Fed hikes in 2017. So our base-case forecast for the end of 2017 is a policy rate range of 1.25 percent to 1.5 percent. That would put three-month LIBOR at about 2 percent. We expect the 10-year US Treasury note to yield around 3 percent or so. We believe the tax-free bond market sell-off was wildly overdone, and we expect the present 4 percent level on tax-free high-grade Munis to give way to the 3 percent handle level. Beyond 2017 is still guesswork, since the details of Trump policies are only guesses. We think this will change quickly, and then markets can refine estimates of Fed policies and rate forecasts.

 http://us8.campaign-archive2.com/?u=d6f020f3bd6a1e2c4eb254e6c&id=c6240c2e84&e=b0091740b9

President Donald Trump 45th President of the United States

January 20, 2017

The Inaugural Address

January 20, 2017

Nominations Sent to the Senate

The Economist: Trump’s troops”: A visual guide to the 45the president’s cabinet and senior appointments

  1. S. and Global Markets
  • Markets are not only influenced by fundamental information and data, technical chart patterns and normal market participant activity, but in today’s global economic setting they are increasingly influenced by price complexity created by building government and central bank intervention required to:
    • Manage building global risks and uncertainty
    • Reflate & grow the global economy and grow business
    • Multiply investment options, and
    • Cool building separatist and populist movements

Near Term Market Considerations Week Beginning January 23, 2017

Near Term Summary Considerations:

  • 10-Year US Treasury Yield: Neutral, acting a little bullish with a lower yield potential
  • US Dollar Index: Correcting upside move underway or possible sideways consolidation for a period
  • CRB Index: Global macro forces supportive and providing green-shoot inflationary support
  • $WTIC Light Crude Oil: Fascinating market, but a market which appears in search of higher highs, some corrective price action should be anticipated  
  • Soybeans: Near term price strength emerging, which makes one revisit 2016 price action in March, April and May of 2016
  • Corn: This market continues to act more bullish than bearish, closing and holding above $3.69 likely implies a move into the $4.15-plus area
  • Rice: Price weakness remains defined in part by global economic, political, and social uncertainties. Overplanting in 2017 given present fundamentals would provide added market challenges
  • Cotton: Bullish, if prices fall below 68-cents corrective price action likely, re-evaluate price expectations
  • Wheat: Bullish Acting, but needs to close and hold above $4.39
  • SPY SPDR S&P 500 ETF: Trend remains positive, prices may need to correct some of their gains
  • QQQ NASDAQ Power Shares: Another strong week, corrective price action needed, but not required
  • EFA iShares ETF - Global Equities Excluding U.S. and Canada: Building momentum
  • EEM iShares ETF, Emerging Market Equities: Range bound –Potentially bullish – Positive for commodities in general
  • MCHI iShares ETF - China Equities Available International Investors: Potentially bullish, momentum appears to be building

Market-by-Market: Near Term Market Considerations Week Beginning January 23, 2017

Charts 1 - 3. $UST10Y - 10-Year US Treasury Yield

Primary Consideration:

  • Neutral: the 10-Year Treasury Yield acting a little bullish with a lower yield potential
  • This is a market that likely builds a trading range for the next one to two years maybe between 2 and 3, but too early to tell
  • Presently we simply need to see how the chart activity unfolds
  • Given market structure presently financial institutions and borrowers are winners at these levels
  • Some suggest the 35-year bull bond market will be over with a yield that holds above 2.6, others at 3.0; I am more in the camp of 3.5. Actually, global fiscal and policy intervention may make picking these points a little premature
  • This is a market that could simply move sideways for a few years

Charts 4 - 6. Power Shares US Dollar Index

Primary Considerations:

  • Neutral - Correcting upside move underway. The following determines sideways consolidation for a period or a resumption of the Dollars move to the upside:
    • 2017 European Union management/mismanagement a key factor in dollar strength or weakness in year ahead
    • Bigger Picture: Global interventionist government and Central Bank activities will define dollar strength or weakness over the next 3 to 12 months, especially President Elect Trump’s currency policy objectives

Chart 7. EURO 

  • Possible near term strength

Chart 8. Australian Dollar

  • Possible near term strength

Chart 9. Canadian Dollar

  • Potential near term strength

Chart 10. Japanese Yen

  • Potential near term strength

Chart 11. British Pound

  • Possible corrective action before heading lower

Chart 12. Dow Jones

  • Trend remains up

Chart 13. Dow Transports

  • Trend remains up

Chart 14. S&P 500 Large

  • Trend remains up

Chart 15. NASDAQ Composite

  • Trend remains up

Chart 16. World less U.S. & Canada

  • Positive momentum appears to be building

Chart 17. Emerging Markets

  • Positive momentum appears to be building

Chart 18. Australia

  • Positive momentum appears to be building

Chart 19. Brazil

  • Positive momentum appears to be building

Chart 20. Canada

  • Positive momentum appears to be building

Chart 21. China

  • This China equity remains neutral

Chart 22. Mexico

  • Possible bottom being formed

Chart 23. Japan

  • Positive momentum appears to be building

Chart 24. Russia

  • Price direction likely dependent on oil price firmness

Chart 25. India

  • India is presently dealing with a number of internal issues

Charts 26 - 28. CRB Index

Primary consideration:

  • The CRB Commodity Index appears to be building a base to move higher, which near term would be a primary function of oil price strength leadership and/or broad commodity support, reasonably stable dollar, and belief and confidence in the near term future.

Charts 29 - 31. $WTIC Light Crude Oil

Primary Consideration:

  • Fascinating market, but a market which appears in search of higher highs, some corrective price action should be anticipated

2017 – Likely primary range $40 to $60 with possible high in $72 area

  • A challenging market being influenced by economic and geopolitical issues
  • Washington Leadership likely bullish U.S. production
  • OPEC and other oil producers have major role in defining 2017 price structure
  • Global uncertainties supportive of prices

Charts 32 - 34. Soybeans

Primary Consideration:

  • Near term price strength emerging, which makes one revisit 2016 price action in March, April and May of 2016. Given fundamentals I remain concerned about additional price weakness and the culmination of a bottoming process near term.

2017 – Pricing opportunities likely emerge as the year progresses

  • Additional Thought:
    • Market participants appear to be building a risk appetite. Being short means at least having close mental stops

Charts 35 – 37. Corn

Primary consideration:

  • This market continues to act more bullish than bearish, closing and holding above $3.69 likely implies a move into the $4.15-plus

2017 – Pricing opportunities emerge as the year progresses in corn, soybeans, and wheat

Charts 38 - 39. Rice

Primary consideration:

  • Neutral – Price weakness remains defined in part by global economic, political and social uncertainties
  • Overplanting in 2017 without additional demand source could be highly problematic for 2017 marketing year prices

Charts 40 - 42. Cotton

Primary Consideration:

  • Bullish prices likely into the 84-cent area. Near term if prices fall below 68-cents, then likely corrective price activity underway

Charts 43 - 45. Wheat

Primary consideration:

  • Bullish Acting, but needs to close and hold above $4.39

Charts Book Index – See charts accompanying this article.

  • Chart 1. $UST10Y - 10-Year US Treasury Yield, Weekly Chart, 2014 – Jan. 20, 2017
  • Chart 2. $UST10Y - 10-Year US Treasury Yield, Daily Chart, May 2016 – Jan. 20, 2017
  • Chart 3. $UST10Y - 10-Year US Treasury Yield, Daily Chart, 2007 – Jan. 20, 2017
  • Chart 4. Power Shares US Dollar Index, Weekly Chart, 2014 – Jan. 20, 2017
  • Chart 5. Power Shares US Dollar Index, Daily Chart, July 2016 – Jan. 20, 2017
  • Chart 6. Power Shares US Dollar Index, Monthly Chart, August 2007 – Jan. 20, 2017
  • Chart 7. EURO Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 8. Australian Dollar Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 9. Canadian Dollar Monthly Chart, 1997 – Jan. 18, 2017
  • Chart 10. Japanese Yen Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 11. British Pound Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 12. Dow Jones, Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 13. Dow Transports Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 14. S&P 500 Large Caps Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 15. Nasdaq Composite, Monthly Chart, 1997 – Jan. 18, 2017
  • Chart 16. World less U.S. & Canada Monthly Chart, 2001 – Jan. 20, 2017
  • Chart 17. Emerging Markets Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 18. Australia Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 19. Brazil Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 20. Canada Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 21. China Monthly Chart, 2004 – Jan. 20, 2017
  • Chart 22. Mexico Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 23. Japan Monthly Chart, 1997 – Jan. 18, 2017
  • Chart 24. Russia Monthly Chart, 2007 – Jan. 20, 2017
  • Chart 25. India Monthly Chart, 2007 – Jan. 20, 2017
  • Chart 26. $CRB Reuters/Jefferies CRB Index, Weekly Chart, November 2013 – Jan. 20, 2017
  • Chart 27. $CRB Reuters/Jefferies CRB Index, Daily Chart, July 2016 – Jan. 20, 2017
  • Chart 28. $CRB Reuters/Jefferies CRB Index, Monthly Chart, 2007 – Jan. 20, 2017
  • Chart 29. $WTIC, Weekly Chart, 2014 – Jan. 13, 2017
  • Chart 30. $WTIC, Daily Chart, July 2016 – Jan. 20, 2017
  • Chart 31. $WTIC, Monthly Chart, 2007 – Jan. 20, 2016
  • Chart 32. Soybeans, Weekly Chart, 2014 – Jan. 13, 2017
  • Chart 33. Soybeans, Daily Chart, July 2016 – Jan. 20, 2017
  • Chart 34. Soybeans, Monthly Chart, 2004 – Jan. 20, 2016
  • Chart 35. Corn, Weekly Chart, 2014 – Jan. 20, 2017
  • Chart 36. Corn, Daily Chart, July 2016 –Jan. 20, 2017
  • Chart 37. Corn, Monthly Chart, 2007 – Jan. 20, 2016
  • Chart 38. Rough Rice Mar '17 (ZRF17) CBOT, Quarterly, Continuation Chart, 1987 – Jan. 20, 2017
  • Chart 39. Rough Rice Mar '17 (ZRF17) CBOT, Daily Chart, Feb. 2016 – Jan. 20, 2017
  • Chart 40. Cotton, Weekly Chart, 2014 – Jan. 20, 2017
  • Chart 41. Cotton, Daily Chart, July 2016 – Jan. 20, 2017
  • Chart 42. Cotton, Monthly Chart, 1997 – Jan. 20, 2017
  • Chart 43. Wheat, Weekly Chart, 2014 – Jan. 20, 2017
  • Chart 44. Wheat, Daily Chart, July 2016 – Jan. 20, 2017
  • Chart 45. Wheat, Monthly Chart, July 2016 – Jan. 20, 2017

 Dr. Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected]

 DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

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