World financial markets have swung wildly today after Donald Trump stunned the world and beat Hillary Clinton to the White House.
Asian shares slumped overnight as it became clear that the Republican challenger had pulled of a sensational victory – and one that raises fears of global instability.
Japan’s Nikkei led the rout, dropping by 5% in a panicky selloff that fuelled fears of a repeat of a Brexit-style rout.
But the situation is looking calmer in Europe right now. After a knee-jerk slide, the FTSE 100 index has recovered its losses and is trading flat.
The US dollar has also scrambled back from an early-morning rout, and is now only slightly lower against the euro.
Investors appear to be taking some comfort from Donald Trump’s victory speech . Trump made some conciliatory comments about uniting America and governing for the whole country, after a desperately bruising and unpleasant presidential race.
Laith Khalaf of financial services group Hargreaves Lansdown says: ‘Initial stock market reaction to the Trump victory was a short intake of breath, followed by a shrug.
Precious metals makers are leading the rally in London, showing that investors are expecting safe-haven assets like gold and silver to remain popular. And pharmaceuticals firms are also in demand — the prospect of Hillary Clinton clamping down on drugs prices has just disappeared over the horizon.
The Mexican Peso has borne the brunt of the Trump shock – hitting a record low.
Joshua Raymond of brokerage firm XTB.com says the markets expect Trump to clash with his Mexican counterparts:
The relationship between the Mexico and the United States is in danger of deteriorating with Mr. Trump promising pre-election to renegotiate terms of trade and attempt to curb immigration from the southern border.”
It didn’t do Hillary Clinton much good, but the US economy is actually in pretty decent shape, with unemployment still low and growth rising in the last quarter.
That’s another reason that the markets aren’t having a complete meltdown today.
Chief global strategist at J.P. Morgan Asset Management, David Kelly, explains:
Real economic growth has picked up in recent months while the unemployment rate, at 4.9%, is close to any economist’s definition of full employment. S&P500 earnings have rebounded smartly from the oil & dollar induced slump of 2015 and inflation is still moderate.
Moreover, the global economy is also showing signs of life with the global manufacturing PMI index hitting a two year high in October. All of this, absent political uncertainty, would be positive for stocks and negative for bonds.
Kelly also points out that Trump may struggle to push his promises through Congress, even though the Republicans have won control of Congress.
It should be noted that there is a wide gulf between Mr. Trump’s agenda and that of many “establishment” Republicans and the latter may well balk at unfunded tax cuts or spending increases.
In addition, both the new President and Congress will likely act more slowly on dismantling the Affordable Care Act or trade agreements, until some better alternatives can be found.
Trump’s pledge to spend billions of dollars on new infrastructure is helping to calm the markets, says Duncan Weldon of the Resolution Group:
A few hours ago, traders feared that the US election would create a Brexit-style slump in the markets – as Asian shares suffered an almighty tonking.
So far, that isn’t happening, but there’s still a definite move out of risky assets as investors wonder what on earth happens next. The Mexican peso continues to bear the brunt of it, hitting record lows against the dollar today.
Ranko Berich, Head of Market Analysis at Monex Europe, says
“With Donald Trump winning the US election a broad global risk off move is developing, although we’ve not seen the kind of panic that followed the EU referendum, except in isolated instances such as the Mexico Peso
Safe havens are well bid, especially the Japanese Yen alongside fixed income and gold.
Risk assets, in the meantime are being destroyed with the Peso the worst loser and equity futures pointing to sharp losses for US equities. Fixed income actives are pointing to lower expectations of interest rates, but it’s still far from clear if today’s election will cause the Fed to lose its nerve and hold fire on rates in December