Traders bet Trump will get along with ev­ery­one af­ter midterms

Gulf Times Business - - BUSINESS -

Time for the art of the deal, with Democrats and China alike? Even as most polls called the elec­tion out­come – a di­vided Congress and po­ten­tial leg­isla­tive grid­lock – the mar­ket lead­ers dur­ing November’s bounce-back hinted at lofty ex­pec­ta­tions. In­vestors ap­pear bullish on trade and fiscal pol­icy un­der US Pres­i­dent Donald Trump and the new par­ti­san regime.

The Global X US In­fra­struc­ture De­vel­op­ment ex­change­traded fund gained 4.6% in the first four ses­sions of the month, far out­pac­ing the S&P 500’s 1.6% ad­vance.

A bas­ket of stocks se­lected by Mor­gan Stan­ley as the most likely to out­per­form if Trump won the pres­i­dency has surged 5.5% this month, right when his leg­isla­tive agenda will need more sup­port from across the aisle. In fact, by ral­ly­ing 9.1% in the six days though elec­tion day on Tues­day, the long-Trump bas­ket has seen its largest ad­vance since the pres­i­dent’s November 2016 win.

Still, some on Wall Street are quick to throw cold wa­ter on the no­tion of a new era of bi­par­ti­san­ship.

“A di­vided Congress is un­likely to en­act a ma­jor in­fra­struc­ture pro­gramme, in our view,” writes Gold­man Sachs econ­o­mist Alec Phillips. “While Pres­i­dent Trump and con­gres­sional Democrats have both sup­ported in­fra­struc­ture pro­grammes, the de­tails dif­fer sub­stan­tially and, more im­por­tantly, Democrats might not be mo­ti­vated to reach an agree­ment with the White House prior to the 2020 pres­i­den­tial elec­tion.”

And can co-op­er­a­tion go global? Com­pa­nies with out­sized ex­po­sure to China have also helped fuel the re­bound in Amer­i­can stocks, ris­ing 3.7% in November.

This comes with a big caveat: Trump’s more lim­ited room for ma­noeu­vre do­mes­ti­cally may spur the com­man­der-in-chief to fo­cus on in­ter­na­tional af­fairs by in­ten­si­fy­ing the trade war. Af­ter all this “is an area where Trump doesn’t need con­gres­sional ap­proval – which means in the ab­sence of any pol­icy-mak­ing room in the fiscal space, he could po­ten­tially dou­ble down on the trade rhetoric (there is not much else he can do),” writes Rishi Mishra, fixed in­come an­a­lyst at Fu­tures First.

For now, signs that traders ex­pect Amer­ica’s clash over com­merce with China to roil for­eign ex­change are con­spic­u­ous by their omis­sion. The off­shore yuan was lit­tle changed rel­a­tive to the US dol­lar as the results of the vote came in.

More­over, the one-month im­plied volatil­ity of the cross, which en­com­passes the up­com­ing G20 sum­mit in Ar­gentina at which Presidents Trump and Xi are slated to talk trade, has like­wise mod­er­ated.

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