WHY MARKETS DON’T LIKE DONALD TRUMP
It comes down to the GOP candidate’s unpredictability, writes Joe Chidley.
Asked during the second TORONTO presidential debate about the perspicacity of tweeting at 3 a.m., Donald Trump sounded a bit like your great uncle swooning over the interweb and how he can share photos of his lathe work with his buddies. He talked about Twitter as a modern communications platform and how effective it is, and concluded that he was “not unproud” of using Twitter in the wee hours of the morning.
With that not unringing endorsement, Twitter stock went on to drop as much as 14 per cent the next day.
OK, OK, I know: Twitter tanked on Monday because of reports that potential bidders for the social platform, especially Salesforce, had backed out, not because of Trump’s endorsement. In fact, his crazy campaign is probably one of the greatest contributors to Twitter traffic of all time, as The Donald himself might say.
But the point is, when it comes to investors and the Republican presidential candidate, one thing is clear: investors — as investors, not necessarily voters — don’t care for him very much. Markets do well when he does badly, and vice versa, and he has just endured probably the worst week in the history of U.S. politics.
So markets are relatively ebullient — maybe too ebullient.
Granted, Hillary Clinton pretty clearly won on Sunday night, judging by the post-debate polls. And the market reaction in the U.S. (Canadian markets, of course, were closed for turkey) was uniformly positive. In morning trading Monday, the tech-heavy Nasdaq neared a new all-time high; the S&P 500 and Dow Jones industrial indexes were both up healthily as well.
The Mexican peso, meanwhile, rallied ahead of the debate (when news of Trump’s misogynist 2005 videotape was still fresh), and though it gave back some of those gains, it has now strengthened by about five per cent against the U.S. dollar since late September. The reason, in large part: markets see the peso’s performance against the U.S. dollar as inversely related to Trump’s political fortunes, given his protectionist ramblings on NAFTA and walls and Mexican rapists.
Political analysts, who seem to be going out of their way to balance the spin as the election result seems more and more like a ratings-killing done deal, might tell you that Trump’s performance on Sunday was something he should not be unproud of. But from the point of view of investors, it highlighted the one thing markets dislike about him so much: his unpredictability. There was no better example of that than his dissing of running mate Mike Pence over Syria, saying not only that he disagreed with the VP candidate on escalating U.S. involvement, but also that he hadn’t even talked to him about it.
As the (polite) kids say these days, WTH?
It’s no surprise that Clinton is leading Trump by double digits, according to the latest polls. Markets, meanwhile, seem to have largely discounted the Republican’s chance of victory on Nov. 8.
Though the odds seem slim, this might be a mistake. There are still nearly four weeks of campaigning left, and a lot can happen. Another factor is the spotty track record of polls in predicting recent votes. Brexit is an example, though in that case the lead for the Remain side was much narrower than Clinton’s is now.
A bigger risk factor, however, might be the impact of a Clinton presidency. On issues of trade, in particular, she, like Trump, leans toward protectionism and government spending; her gettough-on-corporations rhetoric might well turn into action; at least according to her critics, she has a history of flip-flopping on important policy platforms, like the Trans-Pacific Partnership trade deal. Political risk might be lower with a Clinton win, but it will not disappear.
It will not disappear on the global stage, either. Brazil (whose fiscally responsible new government continues to battle the deepest recession in decades), Thailand (whose monarch is ailing), Italy (which faces a watershed constitutional referendum on Dec. 4) and the United Kingdom (where the prospects of a “hard” Brexit are mounting) are all approaching or in politically delicate turning points.
And yet stock markets often seem to be pricing for perfection. Brazil’s Bovespa is up nearly 50 per cent on the year; London’s large-cap FTSE 100 is up more than 13 per cent. In North America, stocks are getting pricier all the time. But so are bonds and gold. Everything is expensive — so where do you run if something goes wrong?
Finally, consider how on Monday Russian strongman Vladimir Putin said his country would be onside with production limits or cuts agreed to by the Organization of Petroleum Exporting Countries. Never mind that the OPEC deal isn’t done yet: what about Putin’s behaviour, or Russia’s former adherence to agreedupon production cuts, suggests that investors should believe anything he says?
Brent crude hit a one-year high within hours.
After nearly a decade of focus on monetary policy, markets are increasingly turning their attention to the political cycle, and by and large they are betting on stability.
But elections do not always go as predicted, politicians do not always keep their promises, and their plans oft go awry. Over the next few months, the markets’ faith in politics will be well and truly put to the test.