President Trump, Year Two: What's Next on the Agenda?
At a Glance
Lead — The Trump administration's post-tax reform political agenda is likely to experience delays in legislative progress, especially concerning infrastructure and immigration, according to Alec Phillips of Goldman Sachs. However, a focus on financial deregulation remains probable as the administration braces for heightened trade tensions with China stemming from international investigations. Per the full note from Goldman Sachs Research, the implications for financial markets could be substantial as these priorities unfold, particularly in the FX space influenced by policy announcements and global trade dynamics.
Key Takeaways
Full Analysis
What the desk is arguing
The Trump administration is navigating a complex political landscape as it shifts focus from tax reform to other priorities. According to Alec Phillips, chief U.S. political economist at Goldman Sachs, key areas such as infrastructure investment and immigration reform may face challenges due to a looming mid-term election. However, movement on financial deregulation is expected to gain traction this year, which could shift market sentiment.
Moreover, the potential resurgence of trade tensions with China will be a significant focus for the administration as it responds to ongoing international trade investigations. These trade dynamics will likely influence FX volatility, particularly for currencies sensitive to U.S.-China relations, such as the Australian dollar and Canadian dollar.
Where it sits in our coverage
The current consensus forecast for USD/CAD sits at 1.075, with individual firm targets ranging across different views: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective on the balancing act of Trump’s policy priorities aligns with jpmorgan's bullish stance while contrasting with bofa's more cautious outlook, indicating that the desk's interpretation may lean towards the upper bound of the range.
How other firms see it
Firms aligning with this strategic view include jpmorgan, which sees potential for further dollar strength, whereas bofa maintains a contrary stance, anticipating a weaker dollar scenario.
Trade-sensitive currency pairs such as AUD/USD and USD/JPY should also be monitored, as they may react to shifts in U.S. trade policy and domestic regulatory changes that emerge from the administration's focus on deregulation and trade relations.
Market Implications
Traders should be alert to how any movement on deregulation proposals influences USD strength, particularly against trade-sensitive currencies like AUD and CAD. Close attention to upcoming speeches from administration officials may provide further clarity on policy directions.
From the original
Now over the hurdle of tax reform, the question becomes which political priorities the Trump Administration will tackle next. Alec Phillips, chief US political economist for Goldman Sachs Research, says the potential for a mid-term election shakeup is likely to delay legislative
Related speeches
4 itemsTaxes, Trade and More in a Trump Presidency
Lead — As President-elect Donald Trump assumes office, the fiscal landscape is poised for significant changes, particularly in corporate taxation and Federal Reserve leadership, which may influence market dynamics. Per the full note from Goldman Sachs, analysts are closely monitoring these developments, given the potential for policy shifts that could favor corporate interests over individual tax cuts. This comes amidst discussions of Trump’s possible unilateral actions without Congressional endorsement, heightening the urgency for market participants to adjust their strategies accordingly before formal policies take shape. As the market digests these indicators, the responsiveness of key currency pairs will likely serve as a reflection of investor sentiment surrounding these political maneuvers.
Rhetoric Meets Reality in Washington
The desk's interpretation centers on the responsiveness of the FX markets to the evolving U.S. policy landscape under President Trump. Per the full note from Goldman Sachs, the discussion around Trump's policy agenda highlights significant investor concern regarding tax reform, healthcare, and trade issues, all of which are critical in shaping market sentiment. Given the uncertainty in a divided Congress, the potential for rapid shifts in policymaking could trigger notable FX volatility. As traders assess these developments, critical levels for USD pairs will be important to monitor moving forward.
China, Trump and Asia's Shifting Trade Order
Following the inauguration of President Trump, the desk identifies a significant risk for Asian economies stemming from a likely shift in U.S. trade policy towards China. Per the full note from Goldman Sachs, Andrew Tilton highlights the potential disruptions for economies that depend heavily on trade with China. This situation necessitates close monitoring as trade tensions have historically coincided with increased volatility in currency markets and broader asset classes.
China's 'Bumpy Deceleration'
Lead — Goldman Sachs' analysis indicates that China's economy is undergoing a 'bumpy deceleration,' which will trigger additional policy easing. They anticipate that this easing will be smaller in magnitude and enacted later than previous measures taken during economic slowdowns. Specifically, the use of traditional tools, like infrastructure spending, will be complemented by tax cuts, which denotes a shift in strategy from the norm. Per the full note from Goldman Sachs, this shift suggests a more measured approach to stimulating growth in light of current economic conditions.
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