John Redwood holds faith in Trump reflation trade

Charles Stanley chief investment officer John Redwood believes Donald Trump will deliver reflation to the US “one way or another” through infrastructure, cutting bank regulation or tax reform.

“He won’t reflate nearly as much as he wants, but he’s probably going to reflate a bit more than markets currently think he will.”

Redwood is doubtful Trump will achieve his aim of 4 per cent GDP growth and that the US president’s advisers believe it is more likely to be just over 3 per cent.

Trump’s proposed $1trn infrastructure package will deliver some success, Redwood says, but the full impact of it could take up to a decade to deliver.

“When Democrats aren’t being too political they actually agree with all that,” Redwood says.

In contrast, tax reform will receive much less support from the opposition, who will fight it “bitterly” and view it as a gift to rich individuals and large corporations, Redwood says.

“At the moment the markets are assuming very little. The markets were very excited by all this late last year, we then had a bit of a wobble or sell off towards the end of the first quarter when people said ‘actually this man can’t get anything through’.”

However, Redwood says Trump has the support of Speaker of the House Paul Ryan, who has said he is happy to bring corporation tax down to 15 per cent if the numbers work.

“Paul Ryan is an extremely interesting and capable politician who has made a career out of arguing America has totally uncompetitive corporate taxes and fairly uncompetitive personal taxes at the higher end and that these must be reformed and brought down dramatically,” Redwood says.

Banking regulation reform is the third way Redwood anticipates the Trump reflation trade could deliver.

“Trump the property developer felt banks didn’t always appreciate the projects he had when he’d bring them forward for financing.”