Issue of the week: Trump and markets

The prospect of President Trump caused convulsions. But was the mayhem justified?

“It’s gonna be Brexit, plus, plus, plus,” boasted Donald Trump as he made his final push for the White House. As far as markets were concerned, he was bang on, said Nichola Saminather on Reuters.com. “The dollar, the Mexican peso and crude oil all plunged as Trump gained ground.” The peso, which has acted as a market proxy for the US presidential race, suffered its biggest one-day drop since the 1994-95 Tequila Crisis; a measure of how badly the outcome wrongfooted investors. Meanwhile, a sea of red in Asian stock markets, and a 5% fall in S&P 500 futures, hinted at the “likely wiping of trillions of dollars of value off global financial markets”. Emerging markets may be hardest hit of all by the “economic and political mayhem” that Trump’s protectionist policies risk unleashing. Threats to pull out of long-standing trade agreements and slap double-digit tariffs on goods from countries such as Mexico and China “could reduce trade flows and harm already sluggish global growth”.

“It’s unsurprising that investors are heading for cover,” said Dominic Rossi of Fidelity in the FT. “We are heading into a world of unprecedented political risk which calls into question the pillars of the post-wwii settlement.” Yet calls for calm appeared to have an effect. After rebounding from initial lows, the FTSE 100 was flat in late trading on Wednesday morning. Investors may have learned some of the lessons of the Brexit vote, said Simon Nixon in The Wall Street Journal. “Even if a Trump victory delivers a market shock, the Brexit experience suggests it need not deliver an economic shock – at least, not immediately.” Trump’s economic plans remain unclear and will depend partly on his relationship with Congress. Meanwhile, a promised “fiscal stimulus” – increased defence and infrastructure spending, plus tax cuts – “could provide a near-term boost to domestic growth”. The conventional wisdom is that Trump will be disastrous for the economy, said Jeremy Warner in The Sunday Telegraph. We can certainly expect “a knee-jerk reaction” early on – especially if his presidency prompts the resignation of Janet Yellen as head of the US Federal Reserve, whom he has criticised in the past. But we shouldn’t necessarily take him at his word: he said whatever he thought was needed to reach the White House. Much of Trump’s agenda – “riddled with inconsistency and economic illiteracy as it is” – will be tempered by Congress. But if he manages only a few of his tax and spending plans, he could “unleash an almighty, albeit temporary, boom” in the US. “If there is one thing we can be sure of about Trump, it is to expect the unexpected.”