International Finance

Now, all eyes on Trump’s team

Stock markets buoyed by expectations that global central banks will keep monetary policy loose

IFM Correspondent

November 14, 2016: Investors endured a rocky day of trading after the shock election of Donald Trump as the next US president sparked a bout of unusual volatility that rocked financial markets around the world.

Shares and bonds whipsawed violently as initial concerns about a Trump presidency gave way to cautious optimism that the businessman-turned-reality-television-star would be less divisive than originally feared.

The FTSE 100 dropped as much as 146.8 points at the opening of trade, only to recover remarkably and close up 68.71 points, or 1pc, at 6,911.84, a rally mirrored in Europe and the US. While futures on the Dow Jones Industrial Average at one point plunged more than 800 points, the US benchmark index was up 1.4pc, or more than 256 points, by the end of the day, just 0.25pc off its record high set in August.

Mark Haefele, global chief investment officer at UBS Wealth Management, said Mr. Trump’s acceptance speech, in which the Republican outsider with no government experience struck an unexpectedly conciliatory tone, soothed some investors’ worst fears.

“We clearly saw the market turn when Donald Trump began speaking and rather than continuing with divisive campaign rhetoric, thanked Hillary Clinton, said he would reach out to all Americans and the Democrats for guidance,” said Mr. Haefele.

In the early hours, before his speech, markets initially panicked as it became apparent he would win, with Japan’s Nikkei 225 stock index slumping 5.4pc and the dollar sharply weaker.

“We had a knee-jerk reaction,” said Phil Poole, head of research at Deutsche Asset Management. However, hopes that Mr. Trump will pursue pro-business policies that will stimulate economic growth, along with his overtures towards the Democrats, helped to spark a rally in the dollar and equities, and saw gold fade.

“He spoke about jobs, he spoke about lower taxes, he also spoke about infrastructure,” said Mr. Haefele. Investors are now betting that Mr. Trump’s focus on infrastructure spending and tax cuts will be inflationary. Treasuries, which had earlier been in demand, were sold-off and 10-year yields spiked as high as 2pc.

Stock markets were also buoyed by expectations among some investors that global central banks will keep monetary policy loose amid the uncertainty caused by Mr. Trump’s victory, although the consensus was still for the US Federal Reserve to hike rates in December.

“People have taken a view that this doesn’t change the over-riding importance of monetary policy and that monetary policy is going to remain extremely loose,” said Mr. Poole.

As the shock waves from the election rippled through the business world, JP Morgan boss Jamie Dimon warned employees in a memo that “we need to listen to those voices” that elected the Republican. Analysts also urged caution that investors should not be over-optimistic.

“If we look at all his pronouncements around policy, they’re not necessarily consistent, they’re not well fleshed out,” said Mr. Poole. “Investors need to watch very closely who Trump appoints, what his team’s going to look like and the extent to which that team is experienced. These are all going to be very important signals in determining just what kind of Trump we’re going to get.”

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