US: High policy implementation risk - BNPP

Research Team at BNP Paribas suggests that the US faces policy risks in terms of trade wars, geopolitical tensions, a failure to deliver the fiscal stimulus proposed, and/or an excessive tightening of financial conditions. 

Key Quotes

“First, the risk of geopolitical tensions and/or outright trade wars seems larger than before. Second, while we see fiscal stimulus (especially via tax reform) as likely since Republicans hold majorities in both the House of Representatives and the Senate, there is considerable policy implementation risk on the 2017-18 horizon. To what degree will stimulus come through revenue cuts vs expenditure increases? What will the profile for each look like? To what degree will former deficit hawks allow the deficit to rise? Will Republicans be unified for both tax and spending proposals or just the former?”

“There seems to be ample scope for disappointment, given risks to the working relationship between President-elect Trump and the GOP Congress and the scope of the Trump administration’s agenda. If markets catch a whiff of failure, positive “animal spirits” could quickly turn into an ugly market tantrum.”