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News of Trump’s victory will be a surprise to markets and there is every prospect that the markets will over-react
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Result was not anticipated outside of the US and fears will turn to the impact on global trade and global economic growth
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The Federal Reserve will now unlikely raise interest rates which may help stocks recover the probably short term losses
“Donald Trump has remarkably been elected as the 45th President of the United States. I say this is remarkable as the press coverage in the UK during the campaign would question why anyone would have considered voting for Trump, let alone enough people to see him to victory. The reality is the UK press underestimated the extent to which Hillary Clinton was seen as the establishment character and disliked by Americans so much that they were prepared to give Trump a chance.
“The result has echoes of the Brexit vote in the UK and the more general global expression of anti-establishment views evident in many countries. Markets will likely react in similar fashion. The result is a surprise and Donald Trump is seen as being likely to have a strong negative impact on global trade if he decides to seek to renegotiate international trade deals, withdraw from international agreements such as that recently made on climate change, and adopt a more aggressive “America first” foreign policy stance. The markets will, for instance, reflect on the potential impact on all those US companies that have moved their manufacturing capability to Mexico of a wall on the Mexican border. For example, Ford has some of its manufacturing and assembly facilities in Mexico.
“Similar to Brexit there is every prospect that the market will over-react. It appears evident that Congress will be controlled by the Republicans. While potentially moderating some of Donald Trump’s more extreme positions, this also means there will not be the same level of stalemate between the President and Congress that there has in the past when they have hailed from different parties. In addition, Donald Trump is above all else, a pragmatic businessman. He has spent his life negotiating and in doing so knows the first statement of your position is not what you expect as the outcome. For example, the idea of a wall between Mexico and the US may sound outrageous, but it appeals to those concerned at the rate of immigration and illegal immigration in particular. In reality there are already over 580 miles of wall and fences along the Mexico / US border and the end position after negotiation may simply be a reinforcing of those existing controls and some additional wall sections to replace fencing sections.
“Over the coming days and months investors will also look to see the extent to which Donald Trump appears more moderate and conciliatory. For example, investors and markets would likely be concerned if Janet Yellen leaves the Federal Reserve early given some of Donald Trump’s rhetoric during the campaign. In short, in the near term markets globally will react to this shock result badly. It was not one the press or commentators outside of the US really saw coming and fears will abound as to the impact on global trade and global economic growth. The shock may be overplayed and the likely impact on the Federal Reserve’s December meeting at which it would probably now be unlikely to raise interest rates may over time help stocks recover the likely short term losses.
“Finally, in the UK it should also be noted that near term weakness in the US Dollar, likely on the back of a Donald Trump victory, will reverse some of Sterling’s weakness which has helped drive the recovery in UK Sterling denominated share prices of FTSE 100 companies with large amounts of overseas earnings. That partial reversal will likely exacerbate slightly the impact of falls in headline UK indices such as the FTSE 100.”
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