*Bucharest Stock Exchange down 1.8 percent
Stock markets reacted negatively to the announcement that Donald Trump won the elections, because of his intention to revise trade and immigration policies in a way that would allegedly have a negative impact on the economy.
The BET index, which monitors the evolution of the 10 most-liquid issuers in Romania, opened at 6,689 points on Wednesday morning, down 1.8 percent following the result of the elections in the U.S., the world’s biggest economy, a result that weighed negatively on investors’ radars.
Ovidiu Dumitrescu, Tradeville Deputy CEO: International financial markets reacted impulsively to Donald Trump’s victory announcement
International financial markets reacted impulsively to the announcement concerning Donald Trump’s victory in the U.S. presidential elections, but, in a scenario similar to the one that followed Brexit, we expect this reaction to manifest itself in the short run and the stock markets to subsequently recover. An example of the fact that we are talking about a temporary reaction on the part of investors is the evolution of the Dow Jones Industrial Average index which, after dropping 800 points, recovered half of that loss.
On the other hand, there are chances the US Dollar will continue to depreciate against the Euro, added pressure being generated by the probability that the U.S. Federal Reserve may not hike the reference interest rate in December.
In its turn, the Romanian market reflected the investors’ risk aversion at the opening of today’s trading session, through a 2 percent drop of the BET index, a drop that was nevertheless partially recovered by midday. The yield of Lei-denominated government bonds has grown to a maximum of 3.23 percent per year for 10-year maturity, against the backdrop in which foreign investors consider them to be risky assets. Nevertheless, it is possible the government bonds market will recover in the short run, if investors encouraged by the Federal Reserve’s caution decide to take risks once again. The Leu is expected to remain in its usual variation interval against the Euro and to appreciate against the US Dollar.
At the level of international markets, a notable exception could be gold, which should evolve positively in a new context that could be marked by economic protectionism and anti-immigration policies which would negatively affect economic growth, trade, investments and financial markets.
John J Hardy, Head of FX Strategy, Saxo Bank: Polls were terribly, terribly wrong, we shouldn’t trust future polls
A few takeaways from this shocking turn of events, in which the entire world was taken by surprise.
- Polls were terribly, terribly wrong – watch the story in the coming days as to how this happened and we should all know now that we shouldn’t trust future polls – here we are thinking especially of European elections next year/Italian referendum in early December, etc.
- Policy is a huge uncertainty. Nominally, Trump does have both houses of Congress after this election, which could mean huge new policy initiatives. But given that some within his own party were explicitly against his candidacy, the route to forceful policy is uncertain – save that Obamacare is likely history (to be replaced by what, however), Yellen’s time at the Fed ends January 31, 2018, and infrastructure and tax deal highly likely – the last of these likely positive for US growth in near term.
The immediate market reaction to what has unfolded and the moves from here:
- The kneejerk reaction was precisely along the lines we (and the consensus, to be honest) would have expected, with the safe havens rising sharply against the USD, especially the JPY, while the EM’s and risk-correlated currencies, led by MXN, tumbled. Because it was consensus that this would happen, this is perhaps why these same trades are unwinding so quickly in the wake of the actual, shocking outcome – that we wouldn’t have expected to materialize so quickly.
- Again, most interesting thing has been the speed with which the initial reaction has at least partially and significantly unwound. If we see the close of trading today more or less entirely erasing the reaction, we likely have our top in uncertainty for now and we can return to our longer term preference for USD longs, JPY and EUR shorts and more.
FOMC hike likelihood will be only data dependent if the markets avoid a meltdown here – i.e., odds are bouncing back quickly together with general sentiment. Doesn’t take a genius to draw a connection between ZIRP (zero interest rate policy) and QE and this Trump win, and the Fed likely wants to extract itself from its political liability for what has unfolded here.