Market Betting A Fed Hike In December Is Certain

It’s almost been a whole year since the Fed last hiked interest rates but it looks like they will finally get a hike off this December. After Trump’s election the Fed is in an ideal situation where inflation expectations are up and stock markets are at record highs. The Fed originally wanted to hike four times in 2016 however turbulent markets prevented that.

Credit Spreads Tightening Consistent With Increased Growth Expectations

It’s important to note that corporate spreads have tightened as yields have increased. This is consistent with other markets which are expecting higher growth and inflation. In equity markets cyclical sectors (financials, industrials and materials) that benefit from growth have outperformed and interest rates have increased with inflation expectations, see here. The chart below shows the BBB corporate spread and it’s lower post-election.

Small Caps Among The Biggest Winners Since The Election

The Russell 2000 is up 12 trading sessions in a row and has gained 10.6% since the election. This is the longest win streak since June 2003 and it has outpaced the S&P 500 which is up 2.7% since the election, see below.

Populism Has Been Steadily On The Rise In Europe

In September I highlighted that confidence in the "Establishment" has been eroding and it's a global phenomenon (see the video here). Since then we have seen Donald Trump elected in the US confirming the movement has serious momentum.

BAML Survey: Investors See US Election Results As Unambiguously Positive for Nominal GDP

Bank of America Merrill Lynch released the results of its monthly global fund manager survey which shows investor sentiment and position changes since the US election. Unsurprisingly the survey confirms inflation and growth expectations have risen as was immediately seen in bond markets last week (see here).