The TED spread is an indicator of liquidity risks in the interbank market. It is the difference between the 3-month interest rate on interbank loans and the yield on 3-month US Treasury Bills. Any rise in the indicator would lead the banks to ask for more Treasuries and be more reticent about granting loans.
We can expect a rise in interest rates in 2017, driven up by the Fed, but fuelled by doubts over Europe. And I would bet the dollar will appreciate against the euro and the yuan – and sterling – although I am not normally a betting man.
In general terms, leaving aside certain nuances, the short-term outlook in the US will be such that it will allow the Fed to raise interest rates, which will be taken as a positive symptom. But on the downside, this will mean higher funding costs. So issuers have already begun to anticípate these rate hikes which will make it difficult for them to match the debt issuance volumes of 2016.
As far as the global economy is concerned, 2017 will be the year when new US President Donald Trump will make his mark. That said, how far his influence will reach is still uncertain as it is still too soon to know how many of his policies will be implemented.
UBS | Based on our latest conversations with investors, the following three questions emerged on Iberdrola: Could we see EPS growth upgrades following the strategic update on Feb-2017? Could renewables growth plans in the US be at risk? And, Is the company likely to pursue inorganic growth as suggested by recent press articles?
There is a statistic link between profits and investment, in the US, so a drop in the former determines a recession in the following quarter. But the Trump effect is likely to mean another imminent recession will have to wait.
UBS | As attention turns towards fiscal stimulus as a means to drive global growth, infrastructure investment is considered a politically feasible way to justify government spending. Despite increased focus, however, deploying additional meaningful funds for infrastructure spending is never easy. The US infrastructure, for instance, has received intermittent attention over the last several years.
Trump and the republicans are already considering a fiscal amnesty which would repatriate – with a tax rate of 10% – the 2.5 billion dollars US companies have outside the country.
Janet Yellen intends to hold firm against market pressure as her press conference showed yesterday. The 0.25% rise in federal funds was downgraded to a modest move, wholly anticipated by investors, while hinting at a moderate path in rate hikes over the next couple of years.
Julius Baer Research | The combination of a positive economic growth narrative, like the fiscal boost under President-elect Trump, and good economic data, creates a powerful positive US consensus. Self-limiting forces of a stronger US dollar and higher interest rates are slowly emerging.