Fed rate hike unlikely before June but nothing can stifle stocks rally
Geoff Lewis, Manulife AM
Feb 27, 2017 | Source: ET Now
On FOMC fine print , case for another rate hike: Well there is a case for it, I am not sure how strong it is at the moment because we have not really seen much that is new in terms of the inflation pressures in the US. It is a very gradual pick up and of course the last observation for average hourly earnings dips down, it looks like a bit of an outlier. Certainly the Fed wants to raise rates and we have to consider the March meeting is live and every FOMC meeting from now on is live. But I do not think there is enough case for the Fed to actually push the button in March. It is more likely to be June before the Fed decides to raise rates and that means it will just be two rate hikes this year rather than three.
In Europe, there are pretty clear indications that economic data is picking up quite nicely across the board. So, quite a lot of political noise has been discounted for, taking the view that in the second round, Marie Le Pen will face a big disadvantage. We do not think that it will be a Marie Le Pen victory in France. Also in the Netherlands there is a large number of small parties that are very unlikely to be part of any coalition. The political risks in our view are overly discounted in the prices. Europe is under owned and is likely to benefit. It has high operational leverage to global growth. It is a market which is looking quite interesting.
On Donald Trumps policies: President Trump has told us it will be phenomenal. In reality, he will probably be talking about a broad plan for tax reforms and reductions in marginal rates. But without all the details, it will take time to thrash out. The markets know that and they are looking for a broad agreement before the end of the year. They will have to work flat out to do that but something around October is quite possible and we had Citi coming out yesterday and saying that they think tax reform could add as much as 1.5% to US GDP growth over 2018-2020.
Markets have to look forward to and it would take some sort of a turnaround and inflection in some of the high frequency data, or some wage pressure signs to really disappoint the market at this stage. There has been enough solid improvement in the global economy and investors will be more patient than they normally are as long as they have tax reforms to look forward to at some point.