Markets prisoner of US populist rhetoric
US President-elect Donald Trump certainly upended pollsters, pundits and the entire media echo chamber, not unlike the Brexit vote. In fact, 24 hours before the presidential vote and the Brexit vote, both outcomes were at four to one – a 20 per cent probability. This new populist Zeitgeist has legs and Marine Le Pen and Frexit, Italexit all look much more likely than ever before. What is clear is that the Internet has been a significant disruptor allowing populist politicians to go over the top.
The narrative is no longer controlled, it’s being written as we speak and it’s being written by the likes of Trump and UK Independence Party Nigel Farage. We are now at an inflexion point and its plain to see.
The markets are having to adjust to a new normal, which is very unpredictable. It is this unpredictability which is surging volatility in financial assets. The immediate reaction to the Trump news was a big flight into what are perceived as Safe Haven Assets. Gold, the yen and the Euro rallied sharply as investors looked for a safe harbour. The Dow Jones suffered its biggest one day loss, and that was even before it opened for trading. The Mexico Peso which has exhibited a near 100 per cent inverse correlation to a Trump win got smashed more than 10 per cent. The markets are now a prisoner of the populist rhetoric and I would have thought this new trend accelerates.
Africa was not mentioned once in the three presidential debates, and it hopes to maintain President’s Emergency Plan For AIDS Relief (PEPFAR) and more recent Obama gains such as AGOA and Power Africa. I have to expect a scaling back of US economic support for Africa. I surmise that economic support gets downshifted and Africom and its counter-terrorism agenda upshifted.
President-elect Trump will surely reset the geopolitical world order – he has already spoken of being able to get along with President Putin of Russia and the Baltic states, and Ukraine’s Poroshenko will be worried that they might well be thrown under a bus. The geopolitical grandmaster Putin is a very big winner. The ‘’rebels’’ in Syria who interestingly are not Syrian will surely be extinguished in a foreign land, and President Assad has outlasted another American president.
With respect to the economic order, it is clear Trump was carried to the White House on a wave of anti-globalisation. He will surely continue to surf that wave and this will place enormous pressure on global trade. Trump will surely be an America-first champion. Mexico is at the bleeding edge, and that’s why we saw such an outsize move in the Peso. We have now entered a Trump Portal into a whole new normal.