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Markets. Sad!

9 November 2016 By Richard Beales

With U.S. presidential candidate Donald Trump’s talk of walling off Mexico, the peso became a reflection of market sentiment throughout the campaign. Trump’s victory on Tuesday over Hillary Clinton tanked the currency 11 percent to a record rate above 20 to the dollar, which also fell. Stock markets in Asia sagged along with U.S. index futures. Safe haven treasuries and gold rose.

It’s no surprise that riskier assets bore the brunt of Trump-induced volatility. First, the reality TV star’s comeback was a surprise. Expectations across both polls and betting markets, echoing a failure to predict the UK’s exit from the European Union, were for the other result, a Clinton win. That would also have meant something closer to the status quo in terms of U.S. policy.

Second, Trump’s stated policies – like the famous wall – tend towards isolationism, with negative implications for trade, the movement of people, and general relations between Washington and other capitals. Third and perhaps most importantly, though, much of what he proposes is vague or contradictory. It’s hard to predict what he will try to do.

That will depend in part on who Trump chooses to lead his economics and foreign policy teams, at Treasury, and eventually to head the Federal Reserve. And of course it will hinge on the U.S. Congress, which may prove no pushover, even though it looks as if the Republicans will control both houses as well as the White House.

Some of the market reaction – the dollar’s 3 percent slide against the Japanese yen, for instance, gold’s spike, or the Nikkei 225 Index’s 5.4 percent slide – may subside as U.S. election-watchers realize the sun will, in fact, continue to rise. There are also two more months of President Barack Obama’s term for navel-gazing and clarification of what a Trump presidency will look like. The breather is unlikely, however, to completely erase the notion that the 45th president’s calling card is uncertainty.

This view has been updated with the final election result.

 

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