The bookies have been major determinants of investor money flows over the last couple of weeks, though many would not have expected the underdog to pull through in yesterday’s US election. Odds of both US presidential candidates have both tightened and widened over the period, prompting a number of asset classes to fluctuate.
Over recent weeks, my opinion has been that election polls were not truly reflective of the probability of a Trump presidency. My concerns of there being many down low Trump supporters, ashamed to publicly disclose their support for the candidate, following his controversial outbursts, were unfortunately proven right, although the final pre-election polls got me believing Clinton had it in the bag.
Now that the unlikely scenario is a reality, Donald Trump has officially been announced as the next president of the United States. Markets have as a result sold off across the board, prompting flights into safe haven assets, though were quick to rebound upon market open.
The Mexican peso dropped 12 per cent on the results, adding to months of uncertainty around Mexico’s future trading terms with the US. The US accounted for 80 per cent of Mexico’s total exports in 2015 and Trump’s proposed policies on trade restrictions is a notable threat to the country’s economy.
A sell-off in broader emerging market assets is also on the cards on fears of Trump’s stricter trading policies.
Global equities sharply sold off following exit poll outcomes, though the DAX, S&P 500 and Dow Jones equity indices bounced back this morning from initial drops of over four per cent. Equities are still in the red, though US stocks are expected to outperform their European and emerging market peers as investors monies turn to safe haven assets.
The initial flow into safe havens was greater in the early morning, as the USD/JPY and USD/CHF exchange rates dropped to lows of -4 per cent and -2.86 per cent respectively, before bouncing back later this morning as initial fears started to ease. The Swiss franc and Japanese Yen are historically considered safe haven assets in times of turmoil due to their respective country’s strong balance of payments.
Commodities were not really affected by the election volatility in recent weeks, though Gold rallied and subsequently corrected to gain 2.5 per cent this morning as markets recovered from initial sell-offs of the Trump victory.
A Federal Reserve rate hike come December is still likely to occur, though should a weaker USD persist over the coming weeks and US economic data fail to meet expectations, a dovish stance could be taken.
A rate hike seems to be already priced in the markets, however, supported by the quick rebound equity and risky assets are having following the panic sell-offs seen in early morning.
Volatility is all but ridden of unfortunately and is set to stay. Expect possible spikes in volatility with a Trump presidency, the Italian constitutional reform vote in December, European elections in 2017, and future monetary policy decisions by global central banks. Investors will surely need to remain cautious now more than ever in their investment allocations.
Disclaimer: This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.