Daily Management Review

Trump's victory muddied global markets


11/10/2016


Crush in global stock markets and collapsed rates of some currencies such as the US dollar and the Mexican peso, observed as Donald Trump’s chances to win were growing, were replaced by a slight recovery.



At first, futures on the S&P 500 lost the highest possible 5% in the first Chicago Mercantile Exchange at night. Afterwards, trading has been suspended (the last time this happened was announcement of Brexit). After resumption of trading, the futures began to win losses back, having reached minus 1.4%.

Asian markets, meanwhile, did not have time to recover. Stock indices of Japan (-5.3%), India and New Zealand showed the largest decline. As president, Trump "will be able to do whatever he wants," since Republicans have retained control of both houses of Congress on the partial re-elections, commented Senior Investment Strategist at Mitsubishi UFJ Morgan Stanley Securities (quoted by Bloomberg). However, Trump's speech after publication of the election’s results "sounded much more presidential than at any stage of his campaign," told Kathleen Brooks from City Index to Financial Times. According to her, his words partly pacified markets. "In fact, one could argue that this outsider has made a victory speech, which was completely in style of the establishment, and it eased tension in the markets" - says Brooks. 

The pan-European Stoxx 600 index, which fell by 2.4% in early trading, then rose, showing a decline of 0.3%. Indices in the UK, France and Germany, are showing a drop of 0.2 to 1.2%. Emerging markets suffered a deeper drop (2%), since these countries may suffer from Trump’s protectionist policies.

"This is an impressive recovery for risky assets, - said Craig Collins, Managing Director of Bank of Montreal in London. 

"Obviously, we need to wait until the smoke clears – thinks Paul McNamara, portfolio manager in the emerging markets of GAM Holding. - But I'm surprised with how well markets are doing". 

Gold has risen in price by almost 5% to $ 1,337, when it became clear that Trump wins in key states; the growth was the most significant since the British referendum. The quotes then dropped. 

Price of Brent crude oil fell to $ 44.5 per barrel, but then played all the losses back to $ 46.

Dollar on the international market suffered from fall in expectations regarding a possible interest rate increase by the Federal Reserve in December. Yet, the loss has already been partially priced in. Euro grew by 2.4% to $ 1.12, then the growth reduced to 0.7%, while the rate - up to $ 1.11. The yen jumped 3.6%, showing an increase of 1.6% to 103.45 yen per dollar.

Investors are beginning to realize that Mr. Trump's rhetoric during the election campaign was "marketing strategy rather than a guide to action," said Michael McCarthy from CMC Markets.

According to him, rapid recovery of the markets suggests that investors are ignoring potential harm that may be caused to international trade and economic growth.

This, in turn, could mean beginning of reforms, which would stimulate the US economy.

source: bloomberg.com, wsj.com, ft.com






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