Donald Trump has won the US presidential election. What are the economic consequences and what do we expect?
The Republican Donald Trump appears to have won the presidential elections despite most forecasting a victory in favour of Hillary Clinton. Crucially, Donald Trump is entrusted with a strong mandate as the Republicans keep control of both the House of Representatives and the Senate. As a result, the Republicans have the means to implement policy change. As we mentioned in earlier occasions (Investors’ Outlook published on 3 October) a Trump victory represents an historic break with established policies, especially with respect to trade, immigration, fiscal and healthcare policies.
The presidential election was decided in the large “swing states” Florida (29 electors), North Carolina (15) Pennsylvania (20) and Ohio (18), which Trump all won.
What is the initial reaction on financial markets?
As financial markets were braced for a Clinton win, there is a correction across equity markets with S&P 500 futures and Nikkei are down around 5 percent. Conversely, so-called safe-haven assets such as government bonds and gold are up significantly. Emerging-market currencies are under pressure, in particular the Mexican peso (see chart 1). The US dollar is weaker as market participants question the willingness of the U.S. Federal Reserve to raise interest rates in December.
Chart: “Risk-off” opening on financial markets
Price change since the 8 November 2016 close in percent
Source: Bloomberg (at 07:48)
What are the economic consequences of a Trump win?
Everything else being equal, the intention to renegotiate key trade agreements and impose trade barriers on Mexican and Chinese imports. This is introducing a high level of uncertainty and might weigh on global economic growth. Likewise, though unrealistic, sharp tax cuts and infrastructure spending would push up the budget deficit. At the margin, such policies should stoke inflation.
What is the read-across for other countries?
Clearly, in a close analogy to Brexit, there is a widespread disenchantment across western democracies with existing policies. Anti-establishment parties in Europe should not be underestimated as French and German elections are scheduled for 2017. These social and political developments are imperfectly captured by polling institutes.
What do we expect?
One needs to be extremely careful when it comes to making predictions, but uncertainty will prevail until a Trump administration unveils its policy programme as it might differ from the candidate’s stated intentions.
Comment by Vontobel Asset Management