Trump wins, and markets take it in their stride

The polls said it wouldn’t be like this. But 2016 is the year the polls got it terribly wrong. 

American flag blowing in the wind
Source: Bloomberg

Those left behind by globalisation have found their voice and their standard bearers. In the US, Donald Trump will be the next president, following on from the UK electorate’s decision to exit the EU. But what about markets? Surely this changes everything?

Given the momentous votes in the US and the UK, everything should change. Most pundits would agree these votes were about a large section of the population left behind by globalisation, free trade deals and free markets. Blue collar workers in manufacturing bases wiped out by cheaper competition in China and other Asian markets and who couldn’t find a new home in the services and digital industries. Those whose perception is that they are losing out in their efforts to find new roles to immigrants coming in from abroad and willing to accept low wages.

This should strike fear into the markets, and the initial reaction suggested fear was taking hold as stocks fell sharply and perceived safe havens like gold, the Japanese yen and treasuries rallied. But then Trump stood up and gave his victory speech. And he sounded a bit more like a statesman, a bit less divisive, a bit more willing to listen. And markets calmed.

There’s a long, long way to go though. If Trump is to give his backers what they want it would be building walls, ripping up trade agreements, imposing tariffs all of which would weigh heavily on the world economy. Will he go that far?

To quote French president Francois Hollande, all we really know is that ‘we face a period of uncertainty’. That’s for sure. And as is often said, markets hate uncertainty. So expect volatility. And expect the unexpected.

All we know for now is there are some apparent winners and losers. On the losing side is the Mexican peso and other emerging market currencies. On the winning side are safe haven stocks, none more so than pharmaceutical stocks, which are no longer facing the threat of a cap on prices from Hillary Clinton. 

Does this spell the end for the market rally? On the face of it, and based on price action thus far, probably not. The fundamentals haven’t changed over the past 24-hours, and once the shock wears off, investors might decide life does go on after all.

The peso has really taken a substantial knock overnight, with the USD/MXN hitting an all-time high of Me$20.80. The fightback has brought price back into the Me$19.90 support level, yet further gains do not seem far away. The long-term picture is one of consistent upside in this pair and with today’s result, that doesn’t look likely to change anytime soon.

Closer to home, the FTSE 100 has experienced a seriously choppy day, with overnight losses followed by a deep bounce back. Crucially we have not seen the 6911 mark overcome and thus the downturn in place since the early October high remains in place. We are seeing the FTSE start to come off and for now we are trying to ascertain whether this will be another Brexit-style runaway rally or if we are set for another bout of losses.

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