Skip to content

CONTRIBUTORS

Michael Buchanan, CFA

Chief Investment Officer
Western Asset

Preview

In his latest market commentary, Western Asset CIO Michael Buchanan discusses the potential impact of US President-elect Trump’s proposed tariffs and other protectionist policies on global growth and inflation. While the ultimate timing, breadth and scale of the tariffs remain unclear, the direction is evident. Market pricing largely reflects the policies President-elect Trump touted in his election campaign, but the possibility remains the policies won’t be fully enacted. Michael discusses with Western Asset’s key macro decision-makers on the implications for interest rates and currencies in their regions.

Key takeaways:

  • US President-elect Trump has been quick to talk up a wide variety of tariff measures on US imports. Additional tariffs on at least some goods seem inevitable, though the timing and extent are hard to predict.
  • Market expectations are that the administration will move forward with select tariff regimes, focusing on key industries, rather than across-the-board tariffs. The rhetorical journey will be volatile, involving threats of less-targeted policies.
  • Should the 60% China/10% rest-of-world tariff plan which President-elect Trump campaigned on come into fruition then the broad macro impact would be higher relative growth and inflation in the US vis-à-vis the rest of the world. In essence, this appears to be the US desiring a larger slice of a smaller pie. Counter tariffs would magnify the growth downside whereas increased US investment and production would lessen the impact.
  • Tariffs, which are more transactional in nature, less broad-based—perhaps with a border policy goal taking priority over a trade goal—would have a smaller macro-economic footprint. Currently, markets are adjusting the probabilities between the broad and more narrow tariff regimes.
  • Many of Trump’s desired policy goals such as low inflation, low interest rates, strong growth, buoyant equity markets and a weak dollar sit uneasily with a more draconian tariff regime. Again, this lends support to a more nuanced regime. The journey toward whichever outcome prevails will see heightened market volatility and uncertainty.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.  Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Municipal income may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable.

Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Franklin Templeton has environmental, social and governance (ESG) capabilities; however, not all strategies or products for a strategy consider “ESG” as part of their investment process.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com. Investments are not FDIC insured; may lose value; and are not bank guaranteed.

You need Adobe Acrobat Reader to view and print PDF documents. Download a free version from Adobe's website.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.