Analysts are already weighing up the impact of a surprise Donald Trump victory in the US presidential election.
Impacts on the UK are hard to determine at this stage, according to researchers at Panmure Gordon, while the ‘Brexit playbook’ may need to be dusted off once again, according to Joe Amato at Neuberger Berman.
‘Market action is set to be dominated by the surprise victory of Donald Trump in the US Presidential Election,’ write analysts at Panmure Gordon this morning.
‘The impact closer to home in the UK is difficult to ascertain give the absence of a political track record from the President-elect however four domestic themes I think are set to result from the result.
KEY IMPLICATIONS
- ‘Inflation upside risks reduce at the margins as sterling finds some respite as the likelihood of a Fed rate increase in December diminishes.
- Free trade deals become harder to broker, and indeed maintain, during the next four years. This diminishes the likelihood of the UK signing trade deals with third party countries including the US.
- Domestic earnings from UK corporates are set to outperform as they benefit from being insulated from disruption to global trade flows and global networks come under increasing stress.
- Eurozone elections come into sharp focus given the insurgency movement behind Brexit and the expected Trump victory. This will limit the strategic attraction of corporate relocations outside of the UK - independent of the post-Brexit EU deal.
BREXIT PLAYBOOK
At investment manager Neuberger Berman, chief investment officer Joe Amato says the ‘Brexit’ playbook may be needed again after Trump’s win.
‘Safe havens such as the Japanese yen and Swiss franc are likely to benefit during the immediate fallout - although the picture is much less clear for the US dollar and US treasuries, of course. A concerted ‘sell-America’ trade is a distinct possibility.
‘Nonetheless, we believe the Brexit playbook is useful here. Market volatility may endure for a little longer, but as it does so, it could deliver buying opportunities.
‘A Trump administration is likely to be better for the traditional energy sector than a Clinton Presidency, and less damaging to the healthcare and financial sectors. United government may also remove the partisan obstacles to meaningful infrastructure spending and corporate tax reform, particularly the issue of profit repatriation - although it is useful to remember that Trump is far from popular among many traditional Republicans.'
RISK ASSETS TO FALL
‘It's Brexit all over again,' says Eric Lonergan, macro fund manager at M&G Investments.
‘The surge in anti-establishment sentiment is definitively global. Brexit can no longer be dismissed as a freak event. It is a trend. Donald “Trump looks almost certain to win, by defying his party, the media, and conventional politics. Populism is coming to power. The critical issue now is what this mean in practice.
‘The immediate market reaction is predictable. Risk assets have fallen sharply, safe assets are rallying, and the dollar is falling. It's deja vu all over again. Like Brexit, will we see a reversal in asset prices in the next weeks or months?
‘Although at this stage it looks likely that the Republicans will retain the House and the Senate, a President Trump will be far more constrained in practice than he has sounded campaigning.
'Even though both houses are likely to controlled by Republicans, this is no guarantee of agreement on his more outlandish policies (building walls and initiating trade wars). He will be pushing on an open door repealing Obamacare and cutting taxes, which are arguably market-friendly, although both are likely harder in practice.’
