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Markets react to Trump win - AM Bulletin
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 Wednesday 09 November 2016

Markets react to Trump win - AM Bulletin

 

 

Indices Update

Hillary Clinton concedes; Donald Trump takes the presidency.

Donald Trump has done it. Despite being shunned by most of his own party and having never held political office, The Donald has won the presidency, and by a clear margin. No hanging chads or legal challenges this time round.

Most pundits are in complete shock, as many expected (hoped) he would suffer complete humiliation. Once again, as with Brexit, the analysts, polls, bookies and financial markets were all wrong-footed and refused to countenance that a majority of voters may feel differently to them. It looks as if Trump is set to win the popular vote as well.

Global equity markets and US stock index futures have reacted negatively. However, all have recovered from the lows hit earlier this morning. The major indices hit their lowest levels in the early hours, soon after it became apparent that support for Trump was much bigger than anticipated. But global indices have since bounced off their out-of-hours lows. Now it could be that this is simply a short-covering bounce after the initial knee-jerk sell-off and that more selling will follow. On the other hand, it could be that the worst is over, although we won’t know for sure until the US opens for business later today.

The main worry is that Trump is an unknown quantity and has spoken out against existing trade policies and NATO. The fear is that this could be a presidency marked by isolationism and protectionism. If it comes to pass then it won’t bode well for financial markets already worried about possible recession. On top of that there’s Trump’s well-known antipathy towards the US Federal Reserve and its Chair Janet Yellen. While Dr Yellen is expected to see out her term through to 2018, some analysts wonder if the US central bank may now hold off from tightening ahead of the year-end. While this may be viewed as positive for risk assets, it also suggests that the Fed considers the Trump presidency problematic for monetary policy.

The FTSE 100 ended the day 36.2 points higher at 6,843.1

The German DAX rose 25.4 points or 0.2% to end the day at 10,482.3

The US30 closed 73.1 points higher to finish at 18,332.7 The S&P 500 ended up 0.4 % at 2,139.6 while the Nasdaq 100 rose 0.7% to close at 4,804.9

Equities

Marks & Spencer (MKS) hogged the limelight yesterday - at least as far as UK corporate earnings were concerned. The retailer announced an 88.4% plunge in half-year statutory pre-tax profits while underlying pre-tax profits were down 18.6%. Underlying earnings per share came in at 11.5 pence from 14.1 pence for the same period last year while basis earnings were a penny per share, down from 10.5 pence. Once again it was clothing that proved to be problematic while food and groceries performed well. New Chief Executive Steve Rowe said that M&S intends to reduce UK stores by sixty. Thirty stores are set for closure while forty five will be “downsized or replaced“ as Simply Food stores. M&S will also withdraw from ten loss-making international markets. Shares were little-changed in early trade but sold off later and closed 5.2% lower at 331 pence.

Commodities Update

Crude oil marked time yesterday ahead of the US Presidential Election. Then it sold off overnight as it became clear how widespread was the support for Trump.  Nevertheless, oil should be relatively unaffected by the election result. This seems entirely reasonable when one considers the most important drivers for the price: supply and demand. In these regards the most significant considerations are currently the outlook for global demand growth together with future production levels. Estimates for global demand growth have shifted downwards recently. This could be set to pick up although a number of economists remain pessimistic in their predictions for global GDP growth. Yesterday China’s trade data showed that oil imports eased a touch in October although they are still up for the year.

As far as supply is concerned, the most important factor now is what happens at the OPEC meeting on 30th November in Vienna. The 14-member cartel is expected to announce details of production cuts and on Monday OPEC secretary general, Mohammed Barkindo underlined the group's intention to reach a deal later this month. However, there are some major issues which have to be sorted out over the next few weeks. Perhaps top of the list is whether any OPEC members will be granted exemptions from an output cut. So far Iran, Iraq, Nigeria and Libya are all demanding that they be excluded. Then there’s the question about which members will shoulder the cuts and how compliance will be ensured. Finally, any reduction in output will prove pretty ineffective if non-OPEC producers simply step up production to take advantage of OPEC’s shortfall in supply. Of course, it’s worth remembering that OPEC members have been pumping as fast as possible over the past few months which could make even a 740,000 barrel per day cut somewhat redundant.

Precious metals steadied yesterday ahead of the US Presidential Election. Gold spent most of the European session trading in positive territory and above $1,280. But the big surprise was in silver which suddenly shot higher slightly before 15:00 GMT. There was no obvious reason for the move but the rally saw silver shoot above resistance in the $18.50/18.60 area.

Then the two precious metals surged higher as it became apparent that voting was going Trumps way. Investors piled into both metals as part of a safe-haven move as the dollar slumped. Gold pushed above $1,330 while silver topped $19 at one stage. However, both pulled back sharply as Europe opened for business and as stock markets bounced off their lows. This seemed to coincide with President-elect, Donald Trump’s acceptance speech which was conciliatory and in which he called for unity.

Forex Update

Understandably, there was relatively little movement in FX yesterday ahead of US voters going to the polls. The dollar was steady against the euro, British pound and Swiss franc although it did make modest gains against the Japanese yen. This was a continuation of the dollar rally which followed news over the weekend that the FBI had concluded its investigation into emails sent from Hillary Clinton’s private server.

Then it was “all-change” as the first exit polls and results came through. It was apparent from early on that the voting wasn’t going Clinton’s way. And, as with the UK’s referendum on EU membership (not to mention the Scottish referendum and 2015 UK General Election) the polls, pundits, markets and bookies were all wrong-footed, yet again. This led to big swings in FX as the dollar slumped against most currencies except, of course, the poor old Mexican peso. Investors poured into those perceived “safe-haven” currencies, specifically the Japanese yen and Swiss franc. The USDJPY hit its lowest level since the end of September while the USDCHF fell to levels last seen in mid-August. Yet as European markets opened, the dollar had bounced back. We know have to wait for US investors to hit their desks to see just how negative market sentiment may prove to be as it comes to terms with President Trump.

Upcoming events

Today’s key economic data releases and events include EU Economic Forecasts and a speech from Bank of England Chief economist and MPC member Andy Haldane. From the US we have the presidential and congressional election results, wholesale inventories and crude oil inventories.

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: AM Bulletin

Category: AM Bulletin


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