Contrary to widespread expectations, including mine, markets surprisingly took maverick Donald Trump’s presidential election victory in their stride yesterday.
True, there was a severe selloff of equities in the Far East, with the Tokyo market plunging 5 per cent and Hong Kong off more than 2 per cent. But after London’s FTSE 100 index initially gave up nearly 150 points, the negative momentum faded and the index closed up nearly 70 points. By that time the various Wall Street indices were trading between 0.4 and 0.8 per cent higher, whereas US futures had forecast a fall of several hundred points.
Investor mood swings are likely to be the story for some timeMartin Flanagan
It will take time for the dust to settle, but there was as much investor buying on the dips as panic selling; as much greed as fear.
Markets being rattled by populist-inflicted black eyes for the political and business elite seems to be the new normal, but the avoidance of an equities’ slump may indicate investors are inured to it. Broker Hargreaves Lansdown pointed out that, following Trump’s victory, equity trading volumes in London were double the norm; but much lower than six times the norm, as seen after June’s Brexit vote.
The dollar recovered its early losses despite an early interest rate rise by the Federal Reserve looking more dubious now. Similarly, oil reversed its early losses of almost 4 per cent to $44.40 to be trading down three cents later at about $46.
Does this means the US pre-election nerves were overdone? Not necessarily. As with Brexit, if there are damaging repercussions for economies and investors from Trump’s presidency it will not be an overnight bombshell, but a gradual change in the political mood wrought by a man whose fundamental view of the world appears Manichean and whose style embraces bombast, bonhomie, hostility and vulgarity.
Nothing particularly negative might happen. But Trump is protectionist by instinct, and a Fortress America approach could have an unpleasant impact on global economic growth. As in Europe, US trade agreements are in the mixer.
Markets are currently telling us the Trump fears were overdone. But investor mood swings are likely to be the story for some time in the new climate of uncertainty. Trump is a presidential jack-in-the-box who hasn’t sprung up yet.