As the dust settles from the shock outcome of Tuesday’s US election, stock markets are continuing to gain with the recovery from the initial sell-off turning into a rally that has several major bourses moving above the levels they traded at the start of the week.
FTSE rises to monthly high
The leading UK share index has moved up to its highest level of the month this morning and is higher by approximately 60 points on the day. The abrupt U-turn seen yesterday after the market opened sharply lower bore an uncanny resemblance to the market’s reaction after Brexit, despite Wednesday’s move lacking the same fundamental drivers that helped the FTSE recover on the 24th June after plummeting on the open. The post-Brexit rally was largely caused by a fall in the pound and the expansionary monetary policy measures announced by the BoE, which in turn further weakened the currency, and provided a massive boon to the FTSE with around 80% of revenues generated abroad but reported on these shores.
Brexit analogies only go so far
The US dollar has actually appreciated since the Trump victory was announced, so this can be discredited as a reason for US stocks to rally (a smaller proportion of US companies’ revenues are generated abroad anyhow) and with the President-elect being an outspoken critic of Janet Yellen, there remains a fair probability that he will seek to oust the Fed chair who is renowned as an arch dove and replace her with someone who has more hawkish tendencies.
A combination of this and possible expectations for an increase in the riskiness of US debt - due to the greater levels of debt to deliver large infrastructure spending and also the possible geopolitical implications surrounding Trump as President - saw US 30-year yields rise to 10-month highs yesterday in their largest daily jump since 2011.
One possible explanation for the rise in stocks could be that the Republicans now control both houses of Congress, therefore controlling the power to push through plans without any of the bipartisan paralysis that meant President Obama’s hands were effectively tied after passing the universal healthcare act. Having said that, this rally still seems deeply implausible and could be nothing more than a case of short-termism causing over reactions to sharp moves in the markets. With Trump now set to move into the White House the possibility of a political mishap causing markets to tumble just ratcheted up several notches.
UK to benefit from US elections?
With many fearing that Brexit would lead to worse trade terms between the UK and the US following President Obama’s warnings, Trump’s victory may be seen as positive. During his campaign, Trump made several references to Brexit and his trade adviser Dan DiMicco has said he absolutely wanted to strike a trade deal with the UK. In an almost perverse twist if the relations between the US and the rest of the world suffer under the new President then both parties may be relatively more interested in reaching out to the UK.