April in review
As of the end of day on April 30, the U.S. S&P500 returned 1.0% (YTD 7.2%) and the Canadian S&P/TSX composite returned 0.4% (YTD 2.9%). Oil (WTI spot/bbl.) is down 2.5% trading at $49.33USD/bbl. U.S. dollar appreciated 2.5% against the Canadian loonie and 4.9% against Euro. The price of gold increased by 1.5% and the price of copper decreased by 1.8% month over month.
Trump Policy Deep Dive: the effect of Trump policies are expected to be short term positive and long term negative
The short term stimulus effect on the economy of Trump’s proposed policies are well understood and well received by the markets. Tax cuts combined with deregulation and infrastructure spending will boost economy over the short term. However, what are the expected impact of proposed trade protectionism on U.S. GDP over the long term?
There are three types of protectionism to be pursued: 1) some variation of a tariff 2) a border adjustment tax 3) Non-tariff trade barriers. To simplify a complex issue, RBC Global Asset Management has ran different simulations. For a sample illustration, an aggressive blanket tariff of 10% or a border-adjustment tax of 20% would both incrementally subtract somewhere between 1% to 2% from the level of U.S. economic output over time. Our in-house forecasting assumes a smaller tariff (4% tariff applied universally) and thus a lesser hit of 0.7% to GDP. [1]
U.S. trade deficit with China tops the list
RBC Analytical Framework: Theoretical tariff considerations
One of the most commonly asked questions by investors is: when will such policies be pursued? While temporary anti-dumping measures could be implemented fairly quickly, more significant changes will take at least a few quarters and up to a few years to implement. As a result we don’t budget for any protectionist drag in 2017, instead assuming that it begins in 2018 and builds from there:
Effect of Trump policies on U.S. GDP
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[1] Global Investment Outlook Spring 2017, Eric Lascelles; Eric Savoie, MBA, CFA; Daniel E. Chornous, CFA
*All indices and figures priced in local currency as at April 30, 2017 (unless otherwise stated)