Well, who’d have thought…?
People around the world have been taken by surprise twice in the past two weeks. First, by Trump’s convincing win in the US presidential race. And second, by the market’s surprisingly resilient response. But as we cautioned in our last post, the election was always going to be a close call and perhaps we should have been more prepared for a Trump victory.
Indeed, US equities have rallied sharply with investors apparently welcoming the end of election uncertainty. Sectors such as construction and banks have done particularly well as investors expect the new president to deliver a surge in infrastructure spending and a lighter regulatory touch.
The possible economic leg-up that the market believes Trump’s policies will deliver has also put a spark under the US Dollar. In turn, investors have fled government bonds on expectations the US Federal Reserve may need to raise interest rates faster than expected to contain inflation.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 23 Nov 16
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People around the world have been taken by surprise twice in the past two weeks. First, by Trump’s convincing win in the US presidential race. And second, by the market’s surprisingly resilient response. But as we cautioned in our last post, the election was always going to be a close call and perhaps we should have been more prepared for a Trump victory.
Indeed, US equities have rallied sharply with investors apparently welcoming the end of election uncertainty. Sectors such as construction and banks have done particularly well as investors expect the new president to deliver a surge in infrastructure spending and a lighter regulatory touch.
The possible economic leg-up that the market believes Trump’s policies will deliver has also put a spark under the US Dollar. In turn, investors have fled government bonds on expectations the US Federal Reserve may need to raise interest rates faster than expected to contain inflation.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Indeed, US equities have rallied sharply with investors apparently welcoming the end of election uncertainty. Sectors such as construction and banks have done particularly well as investors expect the new president to deliver a surge in infrastructure spending and a lighter regulatory touch.
The possible economic leg-up that the market believes Trump’s policies will deliver has also put a spark under the US Dollar. In turn, investors have fled government bonds on expectations the US Federal Reserve may need to raise interest rates faster than expected to contain inflation.
Solid US data is also supporting the case for tighter monetary policy. Markets are now expecting a rate rise in December – in fact, the federal futures market is implying a 95% probability of a 25 basis points hike at the FOMC meeting on 14th December.
Equities in the emerging world have headed in the opposite direction to US equities ever since the election. While the MSCI US Index has risen since the election, the MSCI Emerging Markets Index has fallen in local currency terms.
This implies two things. One, emerging market investors are exiting amid uncertainty about policymaking and a sell-off in US Treasuries. And two, investors in US shares have taken solace in the likelihood that Trump will loosen the public purse strings once he takes office in January.
This could in part be driven by speculation that Trump’s policies will not benefit emerging markets. But we don't necessarily agree with this view – China is already taking initiatives to protect trade in the region and the likely long-term outcome is for the Asia Pacific region to become less reliant on US trade.
A month-long rally in China's commodity futures may be coming to an end after the country's exchanges took steps to crack down on speculative trading. Coal and iron ore futures - which have rallied sharply this year - did a 180 last week following China's three commodity exchanges crack down.
While the commodity rallies have been backed by supply cuts they have also been fuelled by excess liquidity in China.