Trump not triggering worries about US debt affordability
STOXX 600 down 0.3%
Healthcare lags
GSK, Sanofi fall on RFK Jr. nomination
Wall St futures lower
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TRUMP NOT TRIGGERING WORRIES ABOUT US DEBT AFFORDABILITY
Risks of excessive fiscal deficits, fiscal dominance, and a loss of central bank independence are scenarios that several analysts worry about after Donald Trump won the U.S. election.
But markets are not pricing in these scenarios, according to George Saravelos, head of global forex strategy at Deutsche Bank.
“This market is not worried about U.S. credit risk,” he says, adding that if investors were concerned about excessive fiscal deficits, and a loss of central bank independence, the gold price would rise.
“This (lack of concerns on the U.S. debt) is, of course, also reflected in the very muted moves in U.S. term premia and inflation break-evens so far,” he says.
A higher term premium would reflect the greater compensation to an investor for the risks associated with holding longer-duration securities.
Gold meanwhile was set for its worst week in over 3 years.
“We see gold price action as confirming the argument that the U.S. is not at risk of a twin deficit-currency crisis any time soon,” Saravelos adds.
Such a crisis usually puts downward pressure on a currency and refers to a situation where a country simultaneously experiences budget and current account deficits.
(Stefano Rebaudo)
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