The Strategist

What will happen to markets if Trump comes to power?


09/28/2016 - 15:15



Analysts have identified the most relevant assets that will be profitable in the event of the Republican's victory.



Gage Skidmore
Gage Skidmore
Mexican Peso

Mexican peso exchange rate highly depends on Donald Trump’s victory: the higher his chances, the lower the rate. In recent months, the Mexican currency has repeatedly stumbled when forecasts reported that chances of Republican nominee increased. Otherwise, the rate strengthened when the situation was the opposite.

Since the beginning of 2016, the dollar grew almost 16% to the Mexican peso. On the eve of the first presidential debate, the peso fell to historic lows. 26 September, when the debate took place, the dollar was worth about 20 pesos, yet when Clinton won, the peso partially won the losses back.

At the same time, skeptics have warned that the peso has already fallen too much in recent months, so further decline is simply impossible. On the other hand, they are sure that Trump's presidential election, could cause large-scale selling in emerging markets.

The country’s debt

Citigroup believes that if Trump becomes President of the United States, the yield on US government debt securities will increase significantly.

The yield on ten-year and thirty-year treasury bonds will rise from current 1.75 to 2%, and from 2.6 to 2.75%, respectively.

However, Trump himself is afraid of consequences of the US national debt, if bond yields rise by a few percentage points from the current level.

Currently, a significant portion of long-term US debt is trading above par, as they have been released at a time when bonds gave higher yield. In an interview with CNBC television, Trump told about his plan of action: "We will take the debt further, but on one condition: if the US economy slows, or shows a sharp rise in interest rates, we can negotiate with our creditors."

Gold

Trump clearly feels sympathetic towards gold. What rules will be established on the precious metal market if Trump arrives in the White House?

The markets, stirred with possibility of Trump’s victory, can rise price of gold, which is often perceived as a defensive asset, Citigroup experts suggested.

Analysts predict a rise in price of gold to $ 1.4 thousand an ounce for the first time since 2013, if Trump has the majority vote on 8 November.

"We believe that Trump will stick to the insulation policy that could weaken foundations of the American economy - said Georgette Boele, an analyst at precious metals market of Dutch bank ABN Amro, to television channel CNN Money. - In addition, speech and possible political solutions in the country and on the world stage can cause concern, and, in the worst case, even lead to unrest."

Stock indexes

Trump’s victory can cause damage to holders of shares of US companies. Transnational corporations will suffer the most, as Trump's victory could lead to cancellation of some international trade agreements, Bloomberg writes.

In case of Trump’s victory, the S&P 500 will lose about 3%, Citigroup analysts predicted.

Victory of the Republican may affect actions of MSCI Emerging Markets companies. Analysts had expected the index to fall by almost 10% due to strengthening of the US dollar and potential reduction in trading volume. 

source: bloomberg.com, cnn.com




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