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LGT Vestra US

US Election update - Nov 2016

Neil Williams, Investment Director

People across the world have woken up to the news that Donald Trump has won the US Presidential Election. Much like the Brexit vote, the polls, the bookies and the financial markets all pointed towards a Clinton victory so the result has likely wrong footed many investors. Opinion Pollsters will no doubt speculate on why they got it wrong (again!), while others will feel happy that we’ve reached the conclusion of what has been a bitter campaign.

The US election is hugely significant for the economic landscape so it is perhaps surprising that the initial market reaction has been moderate, particularly given the moves in markets in the days leading up to the results. Asia and Emerging Markets equities have sold off; European equities are moderately down while bonds and gold are up. The biggest moves have been seen in the currency markets with the USD down versus the Japanese Yen, the Euro and Sterling. However the biggest move has been in the Mexican Peso which has fallen 10% against the USD at the time of writing. As we saw with Brexit, it is entirely possible that some of the initial market reactions will be reversed throughout the day so we would caution against knee-jerk responses

Now that the Presidential race has been decided, investors will be turning their attention to what Trump's economic policies actually look like. As we’ve alluded to previously, very little time has been spent discussing either candidate’s policies while Trump’s policies in particular have been light on detail. Trump has made tax cuts a focal point of his agenda and talked about a policy for growth. Trump also made infrastructure spending a key part of his economic policy and we do know that this is one area that both Parties agree on.

Perhaps one of the most important aspects of the election result is that the Republican’s will have the majority in both the Senate and the House of Representatives meaning they control Congress. During his campaign trail Trump’s approach and comments divided opinion not only amongst the nation but within the Republican Party. During Trump’s victory speech his tone was more collaborative and conciliatory, with him praising Clinton’s contribution to the nation and her tough campaign. The rhetoric from Trump’s campaign trail is already more moderate, stepping away from some of his extreme comments. What Trump said while campaigning and what he actually does as President may be two very different things.

Markets aren’t very good at pricing in political risk so over the coming weeks and months we are likely to see markets continue to swing on the political pendulum. We also maintain the view that the result of Brexit as well as the US Election will have implications for the upcoming European elections, raising a greater degree of political uncertainty. As the day progresses we will monitor the market moves however we believe is too early to make any meaningful decisions about the impact and outlook for the investment landscape. Once the dust settles then the market will likely turn their attention towards other key forces that are driving the global economy and markets.