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Wall Street sweats over Trump win, gropes for silver linings

Mexican peso's early crash a bet that Trump would carry out his threats to militarise border with neighbour
Thursday, November 10, 2016 - 05:50

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The US election outcome has thrown the world into the void of the unknown and stocks into a volatile frenzy.

THE US election outcome has thrown the world into the void of the unknown and stocks into a volatile frenzy.

Before his election, Donald Trump called it Brexit times 10 and US stocks racked up losses in the immediate wake of his victory in the American presidential race several times those incurred after the UK's Brexit vote.

Japan's Nikkei index closed down by more than 5 per cent, and European indexes opened to similar losses, before jolting back to near breakeven. US stock futures were frozen after dropping by their limit for the day, though early indications are that losses could be more modest there, too, when the stock market opens. Strategists say the shock will take weeks to wash through markets.

"If we've learned anything, it is that markets don't like uncertainty and a Trump Presidency is full of it," said Ryan Detrick, senior strategist for brokerage LPL Financial. "From potential trade wars, to budget deficits, to tax cuts - there are several items that have many on edge for how things will eventually fall."

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As with Brexit, the algorithms and strategists that make the big calls on markets were completely blindsided by the populist upsurge. As with Brexit, pollsters had not expected such a large turnout of uneducated voters. As with Brexit, the mob whose base instincts Trump had appealed to, turned out in force, defying conventional polls, mainstream media and conventional political wisdom -- all of which pointed to a Hillary Clinton victory. "If Brexit was the appetizer, then Trump winning was the main course," said Mr Detrick. "2016 will go down as the year that conventional wisdom and polling were turned upside down."

If President Barack Obama's election was characterized by hope, Mr Trump's, alas, was motivated by hate. Republicans had boasted for 30 years of Ronald Reagan's success in tearing down the Berlin Wall; Mr Trump, who ran against his own party in addition to Mrs Clinton's Democrats, won an election largely on the promise to build a much more extensive -- and equally sinister - wall.

Perhaps the most profound effect on financial markets was the crash of the Mexican peso, a bet that the president-elect would go through with his threats to militarise the border with a nation that's long had close ties with the US. "The markets' main concerns include Trump's protectionist policies, focusing on potential trade wars with China - America's largest trading partner - and with Mexico, it's third largest," said Nigel Green, chief executive of financial advisory DeVere Group.

Where will a Trump presidency take the US foreign policy and economy? That question is more difficult to answer than for almost any one elected president in US history.

After all, Mr Trump is the first person to ever be elected to the White House with no prior political or military experience. Nor does his staff compensate for his inexperience in the arena.

Some strategists pointed to silver linings for investors, in the short term, one reason that markets are swinging between deep and shallow losses. Wall Street may not see the same level of regulation as threatened under a Clinton victory, for example. The health care sector may well see gains.

"A more interventionist policy towards trade ought to help domestic (raw materials producers)," said analysts at brokerage Jefferies, in a research note. "Sentiment towards the health-care sector ought to swing initially away from draconian fears over drug pricing."

The Jefferies analysts predicted an up-tick in economic growth as Mr Trump's promised corporate and consumer tax cuts lead to greater capital and discretionary expenditure.

Certainly, if Mr Trump is setting the tone for America, we are about to enter an era of conspicuous, if not crass, consumption.

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