Make America great again

Statistics have failed us once again.

US Flag
Source: Bloomberg

Ahead of the result release, the market was anticipating a Clinton-win with the clear lead she was holding in polls. However a feeling of déjà vu likely hit the markets as the swing states swung gradually towards the Republicans.

The markets’ favorite elections indicator, USD/MXN, shot up to a fresh all time high of $20.782 though prices has since retraced some gains to $20.00 levels. This interesting development unfolded in other highly-watched markets including USD/JPY and spot gold, XAU/USD.

Asia’s safe haven currency, JPY rose against the USD. The USD/JPY pair declined by more than 3 big figures to $101.20 before returning to trade above the 100DMA of $102.83 as the results were confirmed. Likewise for gold prices, spot gold shot up above $1330.0 only to dip back below $1300 when last checked.

It was no surprise that the market took to the safe havens and battered the Mexican peso given the association of President-elect Donald Trump with volatility and the border wall. Fortunately, or unfortunately, we have the EU referendum in June to reference to in terms of a surprise result for the markets. The initial reactions in the markets can be paralleled to the drop in GBP/USD during Brexit.

Nevertheless, the reversals we are witnessing into Asia evening serves as a reminder that the impact of a Trump Presidency may not be as clear-cut as the Brexit decision. While the Brexit meant a departure of the UK from the rest of EU, the checks and balances of the US Congress could stall some of the more radical policy proposals we have heard in the Trump campaign trail.

Furthermore, the market will also be keen to find out how serious the President-elect is in implementing some of these proposals or if that had been an attempt to appeal to voters. We could see some of this caution sustain in the market until more clarity can be achieved.

Asian markets meanwhile were covered in a sea of red with losses led by the PSEI, KOSPI and HSI. The HSI dropped 2.16% on Wednesday with concerns focused on the economies most exposed to China, the latter coming under the spotlight in Trump’s campaigns. Emerging Asian currencies saw a milder reaction, though losses were broadly seen against the dollar.

In terms of near term developments, the focus will turn to the next Fed FOMC meeting. Our previous base case scenario for a December Fed hike had been contingent of a Democrat win and the latest results had just promised further volatility for the markets, placing the hike at risk.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.