Chief Investment Strategist
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We believe Trump’s speech has confirmed our base-case for U.S. fiscal action.
- President Trump’s speech to the joint session of the U.S. Congress has revived confidence that the unified Republican government will pass substantial U.S. personal and corporate income tax cuts this year, likely before the August recess. This is in line with our long-held views, yet recently doubted in markets.
- As one should expect in a national address, Trump did not offer highly detailed policy specifics. Months of debate and actual compromise lie ahead. However, his comments on the imbalance between high “tariffs and taxes” on U.S. exports versus low entry costs for U.S. imports suggest some version of a Border Adjustment Tax (BAT) may help finance domestic stimulus.
- Trump reiterated plans to dramatically reduce regulation on domestic business while pushing a protectionist trade agenda. At the margin, his approach to trade relations and immigration seemed somewhat more growth-friendly than in the past.
- Market Implications: Renewed confidence in U.S. fiscal action, and perhaps the specific actions that finance it, should reignite “policy divergence” between the U.S. and other markets. The trade-weighted dollar has rallied 0.7% this morning and global bond yields have jumped. For now, International equity markets have taken this divergence in stride given a more confident global growth outlook. The Citi Private Bank Global Investment Committee continues to overweight USD assets (overweight credit, fully weight U.S. equities) given the pros and cons of the new U.S. policy approach for different global asset classes.
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