Global Daily – A shocking victory for Trump

by: Maritza Cabezas , Georgette Boele

US elections: Trump defeats Clinton in historic US elections – The victory of Donald Trump ends a long and highly polarized election process. The president-elect led a unique campaign, which proved to be the right formula. Furthermore, Donald Trump has Congress in his favour. We see two scenarios: a “nuanced Trump” base scenario, in which Trump becomes more moderate under pressure of his own Party. We see economic benefits from fiscal stimulus under this scenario, and ii) Trump’s “rhetoric turns into actions” scenario, where he carries out his policies at face value, increasing uncertainty, resulting in a weaker economy (please see our note US Watch – Trump wins: will America be great again?). His acceptance speech was already moderate and inclusive in tone. We expect that some of his proposals would need to be pared back as some of his economic advisors have already explained. In the coming weeks, we expect that he will seek support within a divided Republican Party. Moreover, more clarity on policies will be provided once Donald Trump makes his nominations. Although Trump has been critical about the Fed, we assume that the Federal Reserve will show its independence and Chair Yellen will remain in her post. This suggests that the slow pace of rate hikes will likely continue in the short-term. However, if volatility increases and the “rhetoric” scenario plays out, then the Fed will likely keep the rates on hold for the time being. (Maritza Cabezas)


Global-Daily-Insight-10-November-2016.pdf (160 KB)


Global FX views: Surprising market reaction – Early Wednesday morning when the probability of a victory of Donald Trump increased, financial markets became very jittery. Initially safe haven assets such as gold, US Treasuries and the Japanese yen did very well. Meanwhile, the US dollar came under heavy pressure. As soon as the news came out that Donald Trump won the Presidential elections and that Congress was the hands of the Republicans, the US dollar started its recovery. This accelerated when he made more moderate comments. Since then the US dollar recovery has continued and equity markets have recovered. What is more, US Treasury yields and US break-even yields have risen from the lows set on early Wednesday morning. The 10y US treasury yield has risen above the 2% level. Meanwhile, gold prices have mostly given up earlier gains and are back below USD 1,300 per ounce again. This is the second time that gold prices gave up most of its gains after a rally. It appears that it is difficult for gold prices to stay above the USD 1,300 per ounce which is probably the result of the selling-on-rally-behaviour of investors. This is a negative sign for the near-term gold price outlook. (Georgette Boele)