Market commentary: Trump’s victory causes unrest in the financial markets
Last night’s election of Donald Trump as the next president of the United States of America has created an unrest in the financial markets, and investors, at least temporarily, sell off from their portfolio of shares and start buying the safer bonds.
This is, among other things, due to the fact that Trump has signalled that he will limit American trade with foreign countries and move production and workplaces back to the USA.
The insecurity is furthermore due to the fact that little is known about the politics that the new president intends to pursue, and that the result of the election comes as a shock for the financial markets, says Henrik Henriksen, Chief Strategist in PFA.
”Markets and investors will be uneasy in the future, as Trump with his rhetoric and proposals to introduce taxes on foreign goods triggers a fear of a slowdown in the global trade and, through that, also a decreased global growth. Therefore, we experience notable drops in the global share markets. The increased insecurity means that investors move towards safe havens such as bonds, gold, yen and Swiss Franc,” Henrik Henriksen says and continues:
”International trade has been stagnant throughout the last years, and it is an unusual development when the world's economy generally increases. This shows that the globalisation tendencies have stopped, and it is likely that Donald Trump will intensify this tendency. This is the biggest challenge, as it can curb global growth and the share markets", Henrik Henriksen says.
The latest key figures point to the fact that global economy is in a moderate but broadly founded upturn, which is helped along by extremely low interest rates. It is unlikely that it is in the new president’s or USA’s interest to derail this, the Chief Strategist estimates. The political insecurity will nevertheless influence the financial markets negatively, and in the coming days, focus will be on announcements from the new presidents, Henrik Henriksen says.
“Simultaneously as Trump was elected, the Republicans in general had a good election, which means that they now hold the majority in both chambers of the congress. This improves Trump’s possibilities of pursuing the expansive financial politics with lower taxes for households and companies as well as increased investments in infrastructure, which he promised the voters. It may turn out to be positive for growth and may reduce the new president's focus on changing the trade agreements and introduce trade barriers, which the markets fear," Henrik Henriksen ends.
In the long term, the combination of a higher government spending, a lowering of taxes and increasingly closed borders may however lead to higher inflation and interest rates, the Chief Strategist adds.