Trump! Really! Our finance leaders reveal the implications for Jersey

Thursday 10 November 2016

Oliver Stones of Quilter Cheviot and Kevin Boscher of Brooks Macdonald give their verdicts on Donald Trump's stunning US Presidential victory and the effect it will have on the Island.

Oliver Stones said: "Anyone feeling a sense of ‘déjà vu’? First Brexit, now Trump. The 45th President of the USA is Donald Trump (repeat this several times to yourself to get over some of your disbelief) and I suspect most of us will have had a sneaking suspicion this time around that the pre-election polls would predictably let us down again, and in this they did not disappoint.

"Without getting side-railed into an interesting socio-economic analysis and debate about the why’s and wherefores of the rise in the vociferous voice of the increasingly aggrieved blue-collared workers on both sides of the Atlantic (there will be endless debate going forward on this topic) - what are the immediate economic implications of this momentous choice by the American electorate?

"The negative effect on most markets so far is underwhelming I’m pleased to report, with most traders muttering ‘it could have been so much worse.’

"I followed the poisonous campaign as closely as I could and what I’m left with, like most of us, is an impression of a blur of cynical, spiteful, often lurid, nasty slanging-match to-ing and fro-ing that had precious little to do with any sensible policy debate. There was precious few clear economic strategies, or any outline of much detail on anything useful by the Trump-camp. We now have to put personal prejudices to one side and objectively try to analyse what policy awaits us and most importantly; awaits the US economy.

"Initially the predictable ‘knee-jerk’ reaction was to sell everything in the face of uncertainty. We are used to this reaction, and clearly - given the recovery of most of the oversold assets - markets are not convinced it is necessary to panic and sell the shop. Even the poor old Mexican Peso is back to being only down 8% at the time of writing from being down nearly 11% at 06:00 yesterday. Also at that time Dow futures (a strong predictor of where the Dow Jones Index will start the day) would open up 800 points lower, it is now predicting a more modest down 350 points open. The Japanese Nikkei closed down – 919 points or 5.4% - and the Yen has rallied as a safe-haven currency versus the US dollar. Sterling interestingly is hardly changed. The predicted ‘bloodbath’ has not occurred in markets; at the very least it’s been postponed to give good sense a chance to prevail.

"Markets will inevitably look for the bad news of course, but it doesn’t have to be like that in the medium and long term, as there are most definitely silver linings to be identified. Trump is going to ‘splash the cash’ apparently, with enormous government spending programmes on infrastructure projects (let’s ignore that particular ‘wall’ for a moment, it may well be that this may be quietly dropped, or at least mellowed now the votes have been cast).

"There is no doubt that the extra spend will have a positive effect on US growth numbers which will continue to be around 2% this year. With the White House, Senate and Congress all in Republican hands it could diminish the usual destructive stand-offs between the executive and legislature and traditionally the Republicans are the party-for-business.

"Much of the vitriolic campaign hyperbole will be dropped or diluted as with the EU-remain camp in their scaremongering anti-Brexit campaign – the promises of Armageddon and fire and brimstone will prove an exaggeration. The Federal Reserve Chairperson; Janet Yellen, will probably not walk out of her job immediately (just as Carney is staying-put in the UK), the December interest rate hike in US rates is still 50% priced-in, the Chinese will probably not dump billions of US Treasury bonds and there almost definitely won’t be a US dollar crisis.

"Whilst the microscope will most certainly be on the new White House executive’s attitude to international relations and immigration policies, as it will be on unfulfilled tax promises, less regulation and more infrastructure spending, the markets are so far giving the new President a surprising amount of the benefit-of-the-doubt and a refreshing lack of panic. Let’s hope this continues."

Kevin Boscher then gave Express his own assessment of the Trump takeover. 

"It is unsurprising that there has been a relatively large market reaction, although we note that this has been more muted than that following the UK’s vote to leave the European Union.

"The US dollar has sold off and global equity markets are down, with Asian stock exchanges selling off heavily overnight and Western equity market futures indicating losses. Risk aversion has also been evident in the fixed income markets, with shorter-dated sovereign bond yields falling globally. We note that the treasury yield curve has steepened, with the yields of longer-duration issues rising as the market has priced in higher growth and inflation expectations. Gold has also benefitted from both risk aversion and rising inflation expectations.

“Given his pre-election campaign pledges we expect the new President to implement a number of policies that will be supportive of US growth and inflation. These are likely to include a rise in the minimum wage and an increase in US fiscal spending, particularly in regards to infrastructure investment. Likewise, he has also pledged to make significant corporate tax cuts, which will provide a tailwind to US-exposed businesses. Further, it is possible that he will attempt to influence Federal Reserve policy; given some of his prior comments, we would expect him to favour a less-independent, more-hawkish central bank.

"Since before the UK’s referendum on its European Union membership, we had identified political risk as a major headwind for global asset markets and Mr. Trump’s victory reinforces the move towards populist and protectionist policies that the UK referendum result brought to the fore. Given the new President’s pre-election stances on higher government borrowing, trade protectionism and immigration, we believe that geo-political uncertainty has now risen further. This is likely to have an adverse impact on investor sentiment, which could be exacerbated by perceptions that his personality is somewhat volatile.

“Although the US election has now passed and markets have fallen, events in Europe and elsewhere still present significant risks for investors over the coming quarters, with Italy’s constitutional referendum on December 4th providing the first hurdle and the Dutch, French and German elections to follow over the course of the next year. Nevertheless, events such as these can create opportunities to purchase quality assets at attractive prices. Over the medium term, we expect global bond yields to remain on an upward trajectory, albeit potentially amid some volatility, as the Federal Reserve already appears keen to raise US interest rates - although it is possible that the election result could impact their resolve. Likewise, we also expect the US dollar to continue to strengthen, despite its overnight weakness.”