The Day After the Trump Win – 9/11, Never Forget. 11/9, Always Regret?
On Wednesday morning we witnessed the final confirmation of what many call a “historic election victory“ for Donald Trump. The fact that someone with practically no political experience will be in the world’s supposedly most powerful political position sent a shock wave through financial markets, across asset classes. However, most of those losses were pared or even turned into slight gains at the end of Wednesday.
What’s important to keep in mind is that markets are not always driven by the same underlying forces, sometimes they are more prone to political or psychological influences, like in recent days, while at other times they are more concerned with actual company fundamentals, as during earning season.
What we have seen on Wednesday, initially seemed to be a “political“ or psychological market, as investors price in fears of how Trump’s policies might “bring down the global economy“. What are those fears actually about? The FT published an interesting article on “Seven Policies That Could Change the US“. Among those, we find his thoughts on loser trade relationships, especially with China, and an alternative foreign policy approach, for example concerning the recently completed negotiations about Iran’s nuclear situation. Not only did Trump express his intentions of abolishing Obama’s milestone healthcare reform, but also did he promise the “biggest tax revolution since Ronald Reagan“, with tax cuts across the board. One of his policies that many observers see as the most impactful is his power to choose a ninth supreme court judge, with the current situation of a 4-4 split between democratic and conservative leaning judges. Another conservative judge could shape key decisions on controversial topics like abortion rights. Trump’s stance on climate change, which he believes is only made up by the Chinese to weaken US manufacturers’ competitiveness, and on immigration, which are widely known by now, are the last two major policy implications we might see from president Trump.
So let’s have a look at how some of the asset classes reacted to the US election results.
Equities
After sharp initial falls (S&P Futures -5%, DAX -3%, Nikkei225 -5.4%), global equities retreated throughout the day, mostly closing higher. The S&P actually hit a 1-month high.
Bonds
Yields of Treasuries (US 10-Year bond) rose (meaning a fall in their price) following an initial fall. The current yield of 2.05% is the highest since January.
Commodities
Gold’s initial risk-off rally of more than 5% (more uncertainty benefiting the “safe haven“ asset gold) reversed later on Wednesday. Oil gained 0.6% to $46.31, helping equities on their way back up.
Foreign Exchange (FX)
The yen, which is also traditionally used as a safe haven in uncertain times / situations, copied other assets in reversing an initial gain. After reaching ¥101.20 earlier in the day, the currency pair went back to ¥105.79 (as this currency pair is quoted as $1 = ¥ .. a rise in the digit means a decline for the yen). The Euro fell from an intraday high of $1.1299 to $1.0924 (with Euro vs Dollar, it is the other way round compared to the Yen quotation). The most notable loser in the market was the Mexican Peso. After touching a more than 10% loss to 20.77 pesos per dollar, it was still down 9% later in the day.
Overall, the question remaining is how much of his proposals Trump will actually push through, especially given the fact that the Republicans are in control of both houses of Congress. Also, one should keep in mind that for his political ideas to become reality Trump needs the support of his party fellows in the Congress, many of which do not share Trump’s views. Maybe that is the reason why markets cooled off from their initial selling frenzy.
Equities
S&P 500: 2163
Nasdaq: 5250
FTSE 100: 6970
Bonds – 10 Year Government Yields
US 2.05%
EU 0.20%
GB 1.26%
Foreign Exchange
EUR/USD 1.0925 (1 euro buys 1.0950 dollars)
GBP/USD 1.2430 (1 pound buys 1.2200 dollars)
Commodities
OIL: Brent: 46.30 (dollars per barrel)
GOLD: 1275 (dollars per ounce)
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Author:Bjorn Stadel
