You are hired. The next President of the United States of America, Donald Trump.
While in many ways it is not surprising, the decision has sent shockwaves across the world. The initial panic in markets has subsided but the world is still reeling from the news and will do so for some time.
As I wrote over the weekend, whether you like him or not, Trump’s popularity in itself is reason enough for those in power to wake up and recognise the inequality that has been the by-product of globalisation.
He has appealed to the many Americans that feel left behind by the system. And clearly there is a lot. This is perhaps the biggest message that can be taken from the Trump victory.
Tame Reaction in Financial Markets:
The financial markets are always the first port of call for people looking to gauge the reaction to such cataclysmic events, and many were expecting carnage in the event of a Donald Trump victory. The so-called BREXIT Squared.
The initial reaction saw equity markets sell-off and safe-haven assets rally, but the response was much less severe than the market movement following the BREXIT decision.
Few would have predicted equity markets closing higher ahead of the result, but such is the case across for many of the major equity indices. The same story played out across the financial markets as risk assets recovered early losses and safe-haven gains were eroded.
Key Implications and Considerations:
What Donald will we get? The market reaction has been tame but the impact of last night’s decision will only be truly felt over the coming years. The fear is a more protectionist America under Trump based on the rhetoric we have heard. Interestingly, his first speech has been viewed as ‘conciliatory’ with people perhaps now taking the view that what ‘the Donald’ says and what he does are two different things. This is a huge unknown!
Mexico under pressure: Mexico has been the biggest victim of Trump’s anti-immigrant and often racist rhetoric. The Mexican Central Bank have held off on raising rates today, which many expected would happen to stabilise the Peso, but they may be forced to move if the currency continues to fall. Much of the talk has been about the supposed wall Trump would build, but he has bridges to build with the Mexicans.
Fed Rate Hikes: The US Federal Reserve were expected to raise rates at their next meeting in December but if we see a persistent bout of volatility over the coming weeks it would be unlikely they will move on rate hikes.
Infrastructure, spend, spend, spend: Expect “Infrastructure” to be the buzz word over the coming months as money is likely to flow into new infrastructure projects. It is an easy win for Trump and his message of ‘making America great again’. Even in his victory speech he said: “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”
Corporate tax: At home, the prospect of a Trump victory has raised concerns that the US might cut corporate tax rates and thus result in ‘less profits being booked through Ireland’.
The reality is that there needs to be a global discussion on corporate taxes, otherwise it is just a race to the bottom. We can’t bury our heads in the sand and hope we continue to get away with it, irrespective of who is elected President. Corporates have to pay their fair share.
The environment: Trump’s opinions on climate change are deeply worrying and it would be a disaster if he pulled the US out of the Paris agreement. More, not less, needs to be done to tackle climate change and the risks it poses. If anyone needs a reminder of who we share this planet with watch the new Planet Earth series!
Globalisation and the anti-establishment: This is another reminder of the revolt against the negative side effects of globalisation and the establishment. I repeat the recent warning from Deutsche Bank: “The stresses it has caused politically are starting to result in higher and higher probabilities of a dramatic social and political response.” Add Trump to the list of dramatic responses!
‘The Donald’ saw an opportunity and he went for it, striking a chord with the disenfranchised. His victory his nothing short of remarkable, a reflection of the current state of the world. It is hard to fathom in some ways.
Speaking with my friend in San Diego this morning, he lamented the fact that the Democrats put the one candidate up that could lose to Trump, ‘everybody hates Hilary Clinton’. If only Trump had ‘felt the Bern’!.
Still, for those who have taken to crying about Trump’s victory, it is worth remember the limits of the role of US President. As well, don’t forget the fact that George W. Bush was President for eight years and the world didn’t end. Yes, this guy, watch videos: President Bush – Fool me Once and Best Bushims of All Time.
It is hard to believe Bush was President. Now Trump! Oh dear…
Vincent McCarthy, CFA