Financial Markets upbeat after US Elections… but…
by, David Frank, Economist
The global financial markets continue to digest the aftermath of Republican president-elect Donald Trump’s decisive win over Democrat rival Hillary Clinton. There was an exciting and action packed 24 hours that marked wild market swings across the spectrum of asset classes. At first, the US Dollar corrected lower, on Wednesday, after news broke Trump was going to win, against all its major trading partners during a tumultuous trading day, only to correct higher Wednesday afternoon and today. This fall lower came thanks to uncertainty, with the Federal Reserve (Fed), following through with a rate hike in December, thanks to Trump’s win. These fears have subsided with over 80 percent of economists and analysts betting on a hike.
This morning, the New Zealand Dollar was the weakest performing currency. The Reserve Bank of New Zealand (RBNZ) cut its main cash rate to 1.75 percent but it’s accompany policy statement played down the need for more rate cuts. This gave the Kiwi Dollar some support and it recovered. Sellers then came back in full force after RBNZ Governor Wheeler said that his bank’s policy maker’s “always have an open mind on FX intervention.” The Australian Dollar also performed better after underperforming yesterday. The sentiment linked currencies had a better day today.
There is a quiet economic calendar in the European and US hours which means the US election outcome will continue to dominate the spotlight. Futures for the S&P 500 are pointing to a solidly higher open today as well as the other major US indices. During Asian hours, the risk-on mood that took hold yesterday afternoon got a nice shot in the arm as the Asian markets were, on the average, five percent higher this morning with the Nikkei 225 rallying over seven percent as the Japanese yen weakened against the US Dollar. Investors are taking an approach that Donald Trump’s bark is louder than his bite.
As the elections went on, sentiment crumbled pushing the global markets lower and at one point stops were activated on the US markets as futures crashed. However, investors got to see a more conciliatory Trump in his victory speech and investors changed their sentiment and risk appetite. His speech showed a path to boost fiscal outlays on a large-scale in and effort of “economic renewal.” These remarks inspired an appetite for bargain-hunting after a day of deep intraday losses. The buyers came out and that sentiment has carried forward into today’s global trading sessions.
Trump is focused on infrastructure projects that will show a demand for materials. This in turn boosted material and industrial plays in the US market. Financial and healthcare stocks also were big winners yesterday as investors priced out a stricter regulatory regime they had priced in for a Clinton White House.
This reallocation of portfolios, inspired by a Trump victory, might not be all good news and a future problem for risk appetite. He has pledged to label China as a manipulator of currencies and withdraw from some of the free trade agreements. He has also pledged to renegotiate other trade agreements. This will begin to worry the financial markets at some point and dampen sentiment. A ramp up of trade barriers will cause a rise in import prices and hurt consumption which is the largest contributor to the United States’ gross domestic product (GDP). This could hurt corporate earnings in related sectors and then the growth in the nation’s GDP as a whole.
from Bullish University https://www.bullishuniversity.com/financial-markets-upbeat-after-us-elections-but/
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