Will Trump’s fiscal stimulus lead to inflation?

Without a surge in monetary growth, fiscal policy alone doesn’t indicate inflation

John GreenwoodFinancial markets have reacted strongly to the election of US President Donald Trump. While equities in the US and elsewhere have risen strongly (reflecting expectations of stronger growth and therefore improved corporate earnings), bond prices have fallen (reflecting higher yields, in turn a result of higher inflation expectations). As debate continues around President Trump’s fiscal stimulus program, a key question has emerged: What role might his policies play in creating inflation?

A large fiscal deficit does not necessarily lead to inflation

Among the main drivers of higher inflation expectations, one is

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History rhymes: Comparing China today with 1920s Japan

China faces two main options in dealing with its economic distortions

John GreenwoodThe Chinese currency has been depreciating since January 2014, and the balance of payments has weakened. There has been a substantial decline in the current account surplus relative to gross domestic product (GDP) since 2010 and, more recently, persistent private sector capital outflows.

The question is: How long will the Chinese yuan continue to depreciate and how much will China’s exchange reserves decline?

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Unit investment trusts: In volatile markets, consider a patient, methodical investment approach

2017 Investment Outlook series

Jack TierneyMacro view

As we look to 2017, we at Invesco Unit Trusts are very happy the US presidential election is behind us and that the world has not changed dramatically. More importantly, our Economic & Market Outlook Committee believes that the slow growth economy will continue, that the “lower for longer” thesis regarding interest rates will stay in place, and that corporate America will chug along at a modest pace of sales and profit growth.

We think a reasonable bull case can be made for the US dollar, between pressure on the British pound stemming from the Brexit vote to leave the European Union, as well as an overbought Japanese yen. We believe inflation in the US should remain

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Multi-asset: What could challenge markets in 2017?

2017 Investment Outlook series

David JubbIn the Multi Asset team at Invesco Perpetual, we have a two- to three-year investment horizon, which we believe helps reveal attractive investment opportunities by accounting for both cyclical and structural market drivers.

Given this investment horizon, we form a central economic thesis which summarizes the path we believe the global economy will follow over the next two to three years. This economic outlook does not drive the selection of our investment ideas, but is one of the tests for each idea before it is approved for the portfolio. We must believe that each idea has the potential to generate a positive return against our two- to three-year view of the world.

One of our intentions in choosing this time horizon is to avoid

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Global economy: How might economic recovery differ across developed and emerging economies?

2017 Investment Outlook series

John GreenwoodOver the past several years, both the developed and emerging worlds have been responding to the long shadow of the great recession of 2008 and 2009, and the cycles in each area have diverged.

The recovery of the developed economies has been hampered by two factors: the slow process of balance sheet repair, especially among the banks, and the differing consequences of the implementation of quantitative easing (QE). These factors have combined to create subpar growth, an agonizingly slow return to full employment, low wage growth and fractious electorates.

By contrast, the emerging economies implemented strong stimulus programs between 2008 and 2010. These proved so successful that some economies, including China, Brazil and Russia, had to reverse course and slam on the brakes in 2011 and 2012. As a result, between 2014 and 2016, they too experienced economic slowdowns, recessions, currency weakness and the pain of debt workouts.

For both developed and emerging economies, the outlook for 2017 will be closely correlated to how these differing problems are addressed.

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What will drive markets after Trump’s victory?

The US election results bring short-term uncertainty, but policy will be key in the medium term

Waldner_Rob_sm_150dpi_RGBIn a surprising outcome, US voters elected Donald Trump as the next president of the United States. This result was viewed as unlikely by the market. In the short term, the market reaction may be driven by increased uncertainty. However, over the medium term, Invesco Fixed Income expects the economic impact of Trump’s policies to drive markets.

Although much of the attention of the campaign has been on personalities and temperament, there has been some basic policy framework laid out by the Trump campaign. There is much uncertainty about what will actually be implemented by President-elect Trump, but we believe there are a few key policy elements that will likely be implemented first:

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