In a note published last week, Goldman Sachs economist Alec Phillips wrote that the sweeping reforms that many predicted once Trump took office are looking less likely to happen, given the increasingly toxic atmosphere in Washington, citing the fact that President Trump may actually follow through on his trade policies as negative prospect for the markets.
He went on to write that there was a positive shift in sentiment among investors, businesses and consumers immediately following the election. For many observers, the probability of tax cuts and easier regulation was seen as higher than heavy restrictions on trade and immigration.
However, just over two weeks into the Trump presidency, Phillips wrote that the balance of risks was now “somewhat less positive in our view”.
This view is a far cry from those voiced by Goldman chief Lloyd Blankfein in an interview with German newspaper Handelsblatt in December, in which he predicted that Trump could turn out to be a “much better president than anyone else might have been in that place.”
Also quick to board the Trump train, BNP Paribas analysts in November predicted “a fiscal stimulus that sizzles: boosting growth, lifting inflation and supporting asset prices.”
In fact, in the bank’s view, the real risk was that Trump would be unable to get as much of his fiscal plan through Congress as expected.
Capital markets bankers should be longing for the days of such carefree optimism.
Trump's talk on Mexico and various disputes with world leaders, including the seemingly affable Prime Minister Malcolm Turnbull of Australia, now make any talk of “no major trade wars” seem very bullish indeed.
BNPP's prediction that Trump would defer fiscal details to Congress while going out to score “political wins” also seems to have been overly optimistic, given that Congress has yet to be consulted on almost any of President Trump’s agenda.
The Goldman Sachs note points to the fact that like many commentators in the media, investors and banks may have been duped into the belief that Donald Trump might behave like a president. So much for “taking Trump seriously, not literally”.
Despite outsider status and promises of shaking up the established order, it should be clear to the biggest banks now that markets flinch at unpredictability, and may sound a full retreat if the Trump chaos continues to reign.