GDP, Inflation, Interest Rates Forecast to Rise Under Trump Presidency The presidency of Donald Trump is poised to usher in a new era for the U.S. economy that forecasters say could boost economic growth, bring higher interest rates and inflation, and a new set of potential risks including international trade wars.

The cautious optimism revealed in The Wall Street Journal’s latest monthly survey of economists owes to the belief that the Republican’s proposals to reduce taxes and invest in infrastructure will amount to a substantial fiscal stimulus.

On average, economists marked up their growth forecasts. The economy could expand 2.2% in 2017 and 2.3% in 2018, as a fiscal stimulus kicks into gear, up from about 1.5% over the past 12 months. Inflation is seen at 2.2% next year and 2.4% in 2018. (…)

(…) [a trade war] was cited as the biggest risk to the economy by 43% of economists. A move from the U.S. to impose tariffs on foreign nations could lead to a spiral of rising trade barriers, higher import prices, and shrinking markets for U.S. exporters. (…)

Government Bond Rout Deepens Investors continued to dump government bonds as they weighed concerns that a Donald Trump presidency will lead to higher interest rates and inflation.

The yield on the benchmark 10-year Treasury note reached a high of 2.301% Monday, up from 2.118% on Thursday’s close after U.S. government bond markets were shut Friday. (…)

The yield on the 10-year Germany government bond was up above 0.39% on Monday, on track to close at its highest level since January. U.K. government bond yields have retraced to levels last seen in the month before the Brexit vote, which triggered a sharp rally in these securities. Developed-market government bond yields in Asia also jumped. Italian government bond yields jumped to 2.15%, up from 1.96% on Friday. (…)

Ten-year Treasury yields have risen by nearly a percentage point since reaching an all-time low in early July. (…)

The likelihood of the Federal Reserve raising interest rates next month rose to 81.1% Friday, according to moves in Fed fund futures tracked by CME Group, up from 71.5% the previous day. (…)

“The bond selloff cannot occur in a vacuum,” said Jack Kelly, an investment director at Standard Life Investments. “It has implications for other asset classes, which then creates a supportive feedback loop for bonds,” said Mr. Kelly.

Some investors have justified historically high U.S. stock market valuations against the backdrop of ultralow bond yields.

So far, equity markets have mainly gained as bonds sold off.

Well, not all equity markets as The Daily Shot illustrates:

Emerging markets shares are tumbling as capital flows out. The chart below shows the relative performance of the MSCI Emerging Markets Index vs. the MSCI World Index.

• The Trump Effect: Rout in Global Bonds and Emerging Markets Intensifies

• Goldman Sees the Possibility of Stagflation Under Trump Presidency

• Deutsche Warns Of Imminent “Domino Impact” For Stocks From Bond Carnage, Soaring Dollar

• How Trump’s Plans Could Be Stymied by Fiscal Hawks

Moody’s warns on global sovereign credit outlook

Sluggish economic growth and a shift to fiscal stimulus measures such as those proposed by Donald Trump are bad for global creditworthiness, Moody’s has warned, as it reported that the proportion of countries with a “negative” credit outlook has climbed to its highest level since 2012.

Some 26 per cent of countries rated by Moody’s now have a “negative” outlook, up from 17 per cent at the end of last year.

In its annual Global Sovereign Outlook report, the ratings agency said the global outlook for sovereign ratings for the next 12 to 18 months is negative, blaming a combination of low growth, spending plans that will increase public debt, and “rising political and geopolitical risks”. (…)

The ratings agency said the direct impact of the election was still “uncertain”, but gave a general warning about “increasing risks of policy inertia and reversal, including of policies that have brought large benefits to the global economy, such as those that expanded global trade”. (…)

The report from Moody’s also included a particular warning about emerging markets, noting the risk of a “significant and sustained” movement of capital flows that could exacerbate weak economic fundamentals and increase political risks. (…)

Trump team plays down fears of US trade war with China Protectionist pledges expected to take back seat to stimulus measures

(…) “There aren’t going to be trade wars,” Wilbur Ross, the New York investor and Trump adviser, told US media last week.

Mr Ross argues that Mr Trump’s widely-quoted campaign threat to impose a 45 per cent tariff on Chinese imports — seized on by economists as the potential trigger for a trade war with Beijing — has been misunderstood and amounts only to negotiating tactics. (…)

His 100-day plans calls for his administration to “identify all foreign trading abuses that unfairly impact American workers” and “use every tool under American and international law to end those abuses immediately”. (…)

According to a new study by the Rhodium Group, a research firm, cumulative US direct investment in China between 1990 and 2015 reached $228bn. The Chinese equivalent into the US was worth $64bn. But this year alone Chinese FDI into the US is poised to hit a record $30bn, according to Rhodium, and anything disturbing that would hit American workers. (…)

Mr DiMicco, who is a candidate for both commerce secretary and US trade representative, told the FT on Saturday that any notions of a Trump administration taking a softer post-election line on trade were “false rumours”. (…)

But Mr Trump’s running mate, Mike Pence, who has taken charge of the transition, is a free trader who as governor in Indiana has travelled to China to court investment. Moreover, there are already signs the Republican trade establishment is entering the fray with a former US Chamber of Commerce lobbyist, Rolf Lundberg, put in charge of the transition’s trade policy implementation. (…)

China data point to steadier economy for now, but Trump victory adds to risks China’s economy largely showed further signs of steadying in October as expected, but disappointing retail sales growth and fears of U.S. trade frictions under incoming President Donald Trump are increasingly clouding the outlook.

(…) Fixed-asset investment expanded 8.3 percent in the first 10 months from a year earlier, slightly ahead of market expectations and supported largely by government spending.

Investment by state firms surged 20.5 percent, though the pace cooled slightly from the first nine months.

In an encouraging sign, growth of private investment picked up to 2.9 percent from 2.5 percent in January-September, though it remained sluggish after hitting a record low of 2.1 percent in the first eight months of the year.

Private investment accounts for about 60 percent of overall investment in China. (…)

Retail sales growth cooled to a five-month low of 10.0 percent from 10.7 percent in September. Analysts had forecast they would hold steady. Statistics bureau spokesman Mao Shengyong blamed the sales slowdown on a high level of comparison with last year. (…)

October industrial output also missed expectations but to a much smaller degree, rising 6.1 percent, the same pace as in September but marginally less than forecast. (…)

EARNINGS WATCH

Factset:

To date, 91% of the companies in the S&P 500 have reported actual results for Q3. In terms of earnings, more companies (71%) are reporting actual EPS above estimates compared to the 5-year average. In aggregate, companies are reporting earnings that are 6.5% above the estimates, which is above the 5-year average.

In terms of sales, more companies (55%) are reporting actual sales above estimates compared to the 5-year average. In aggregate, companies are reporting sales that are 0.5% above estimates, which is below the 5-year average.

The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for Q3 2016 is 2.9%. The third quarter marks the first time the index has seen year-over-year growth in earnings since Q1 2015 (0.5%). Eight sectors are reporting or have reported year-over-year earnings growth, led by the Real Estate and Utilities sectors. Three sectors are reporting or have reported a year-over-year decline in earnings, led by the Energy sector.

If the Energy sector is excluded, the blended earnings growth rate for the S&P 500 would improve to 6.2% from 2.9%.

The blended sales growth rate for Q3 2016 is 2.7%. The third quarter marks the first time the index has seen year-over-year growth in sales since Q4 2014 (2.0%). Nine sectors are reporting or have reported year-over-year growth in revenues, led by the Consumer Discretionary, Health Care, and Real Estate sectors. Two sectors are reporting a year-over-year decline in revenues, led by the Energy sector.

If the Energy sector is excluded, the blended revenue growth rate for the S&P 500 would improve to 4.5% from 2.7%.

At this point in time, 85 companies in the index have issued EPS guidance for Q4 2016. Of these 85 companies, 59 have issued negative EPS guidance and 26 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 69%, which is below the 5-year average of 74%.

Era of Low Interest Rates Hammers Millions of Pensions Around World Central-bank moves are pulling down returns for government-run funds, making it difficult to meet mounting obligations to workers and retirees. Low rates are exacerbating existing cash problems.

(…) The low rates exacerbate cash problems already bedeviling the world’s pension funds. Decades of underfunding, benefit overpromises, government austerity measures and two recessions have left many retirement systems with deep funding holes. A wave of retirees world-wide is leaving fewer active workers left to contribute. The 60-and-older demographic is expected to roughly double between now and 2050, according to the United Nations. (…)

Low rates helped pull down assets of the world’s 300 largest pension funds by $530 billion in 2015, the first decline since the financial crisis, according to a recent Pensions & Investments and Willis Towers Watson report. Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis. (…)

[Calpers] still has just 68% of the money needed to meet future retirement obligations. That means cash-strapped cities and counties that make annual payments to Calpers could be forced to pay more. (…)