US federal elections are a week away and that means everyone’s favourite reality TV show is coming to an end. While the spotlight will shift away from American politics, we think US policy will still hold the attention of global markets. This month, we’ll take a look at the Canadian economic outlook, US election and interest rate decisions, and major global political threats.
- Shifts in housing regulations and the slowness of the winter months should dull the over-heated housing market. These policy changes will help the bank of Canada keep interest rates low to favour the business environment.
- Canada’s trade deal with Europe hit a speed bump in October as the Walloon region of Belgium vetoed the bill. Now that it is signed, the new free trade deal is a welcome beacon in a country with low growth forecasts.
- The likelihood of Trump winning the presidency is still low. This is good news for the markets as “Financial markets expect a generally healthier domestic and international economy under a President Clinton than under a President Trump.” Plus, markets like predictable outcomes. A surprise may create some short-term volatility, but the lasting effects would be softened by the fact that a divided house would not be conducive to drastic policy changes. If Hillary wins, the US will probably see more open trading, and a more stable political base.
- Unless any unexpected political events unfold, the US Fed will likely be compelled to raise interest rates in December. This move signals growth, and would be done in a way that won’t remove liquidity from the current market. This anticipation has pushed the USD higher vs other global currencies and continues to indicate a strong outlook for the US economy.
Global political landscape
While the recovery from the recession in 2008 is still waiting to turn the corner, the global outlook for developing economies is looking positive again and the US economy continues to see improvements. While there are always political events that can disrupt progress, a few are worth addressing.
- Russian-West relations have been tense with the US most recently promising to send 4,000 troops to Europe’s eastern boarders after Russia refused to refuel 3 NATO ships at a Syrian port. While the barometer is rising, this recent engagement seems to be more of an appeal to build Russian nationalism and faith in the current leadership, rather than a call to war.
- The movement towards ultra-right wing, xenophobic politics weakens trade and hurts economies, especially individuals with lower incomes. While these policies have influenced decisions in the likes of Poland, Hungary, and Britain, cooler heads should prevail in more impactful economies like the US.
- Finally, the threat of cyber attacks is becoming more prevalent. The uncertainty of attacks and the anonymity of the attackers likely means that the cost to do business will increase, but the gap means that there is opportunity in creating solutions.
Typically, as one sector weakens, another will strengthen as money seeks out the best investments. Setting up a well diversified portfolio that rebalances when sectors have increased or decreased significantly is a time-tested way to take advantage of this tendency. Don’t get caught up in the day-to-day changes. Set a policy and let the rules do the work.