“I heard a fireside chat, I saw a baseball bat, and I just laughed till I thought I’d die, But I’d be done see’n about everything, when I see an elephant fly” (Walt Disney’s Dumbo)
So it turns out that an egomaniac xenophobic misogynist bully with a tenuous grasp of international affairs (and reality!) is just what investors want as the US President! Who knew? The post-election “Trump trade” propelled developed equity markets to new highs and sent bond markets into retreat amid expectations of a strong fiscal boost to the US economy. At the same time, concerns over the future direction of global trade relations saw emerging market assets lag markedly and the Dollar climb to a 14-year high.
Equities
A quarter that began with equity markets under a cloud, as investors fretted over the outcome of the Presidential election and likely timing of a US interest rate hike, ended with fireworks, as those same investors embraced the prospect of large-scale tax cuts and infrastructure spending under the incoming Republican administration.
The turnaround in sentiment was both swift and unexpected and provided a further demonstration, if it were needed, of the capricious nature of the prevailing market environment. This was no more apparent than the night of the election itself: as results from the various electoral colleges began to suggest that a Trump victory was increasingly likely, futures on the S&P500 index started falling steadily and, by the time the result was confirmed, were “limit down”, having dropped as far as they are permitted under restrictions intended to reduce the possibility of a market crash. Just hours later, however, at the opening bell on Wall Street, the same index opened down less than 0.4% and by the end of the trading day was up 1.1%!
Away from Washington and out in the real world, a steady stream of core economic data pointed to an improving global backdrop: GDP numbers from the US (+3.2%), Eurozone (+0.3%), Japan (+2.2%) and China (+6.7%) either met or exceeded expectations, while purchasing manager indices (PMIs) in all four economies indicated solid levels of expansion in both their manufacturing and service sectors. Other important indicators, for employment, housing, consumer confidence, etc. were also, for the most part, favourably received, and added to the markets’ positive tone. (Fig 1 – Overleaf) … Download the entire 4-page article to read.
Quarterly International Market Report - Q4, 2016
View the Video Report also.
