09.11.2016

Trump President – what to expect from the markets

by IG Bank

400The polls and the market got it all wrong “Again”. From the start of his run as a republican candidate to the final minutes of his campaign, Donald Trump was never really taken as a serious contender to the white house, and here we are. In the face of the surprise, equity markets corrected over 5% during the night with US futures temporarily suspended. The market has since recovered some, as liquidity came back to the market. USD dollars fell and safe haven assets such as sovereign bonds, the Franc, the Yen and Gold rose.  Donald Trump is president of the United States and retains control over both the house and the senate, which means in theory that he has the green light to implement all his ideas. The market will now watch carefully to what extend Trump will implement his policies, and to the image of his victory, it will be hard to predict.
 
Looking at his campaign however, not all is bad from an investment point of view. Trump wants to implement a fiscal push and increase infrastructure spending, which should benefit the consumer and the construction sector. Large fiscal measure could also have a positive impact on Inflation, which ultimately would benefit the USD, and banks. The latter may also benefit, if Trump abolishes the Dodd-Frank Act put in place to reduce the bank’s systemic risk, although we do not know yet what would replace it. Other sectors to benefit are the defense sector, as well as Coal and fossil fuels companies to the detriment of clean energy. A rate hike from the Fed in December which had an 80% probability prior to the election is now questioned, which could also be supportive of equity market. The pharmaceutical and biotec sectors which have been the biggest underperformer this year, could also experiment a relief rally in the short-term, although longer term a big questions mark will remain on what will be the future of Obamacare. Another question mark, is how he will renegotiate the current trade agreements. US exporting companies, or foreign companies highly exposed to the US should for now be avoided.
 
From a political implication, we can expect this event to boost the chances even more for any other anti-establishment political party. With a number of events in line such as the Italian referendum on December 4th or the French elections next year, we should expect market volatility to spike around these events. Overall risk tolerance should also remain low, especially in Europe.
 
For Switzerland, the USDCHF touched 0.9550 after rebounding sharply to above 0.9725. The impact on EURCHF was very limited with a low at 1.0750 before rebounding at 1.08, as speculators may be losing faith speculating against the SNB, after a failed attempt after the Brexit. The biggest gainers on the SMI are clearly the pharma, who benefit from a relief rally, although longer term it’s a risky bet. Among losers are the banks, which in the short-term may suffer from market volatility and risk aversion. A potential delay of the Fed hike in December is also a short term negative.

Andreas Ruhlmann
Premium Client Manager / Market Analyst  - IG Bank
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