It happened. A new black swan for global markets. As Lehman in 2008 or Brexit this year, Donald Trump's victory brings a new shake for international stock markets. In Asia, declines reached 5% and in Spain the Ibex 35 drops a 4%, trading around 8,600.
The price of gold has soared nearly 5% with the US dollar dropping 2% against a basket of currencies
CMC Market’s Jasper Lawler said:“Before Trump even had it in the bag, US stock markets futures were halted limit down until the New York Stock Exchange and Nasdaq open this afternoon. The price of gold has soared nearly 5% with the US dollar dropping 2% against a basket of currencies. The Mexican peso, which has proven the most sensitive to a Trump victory crashed double digits after an ill-conceived relief rally earlier in the week.”
The market’s relief rally was of short nature, and markets took a plunge again as it became more and more apparent that Trump beat Clinton in the race for the White House. Though the US equity exchanges were already closed when results started showing Trump in the lead, the E-mini S&P 500-futures went limit down as the circuit breakers kicked in at -5%. Asian spot markets plunged as well, with the Nikkei 225 at -5.3%. However, admittedly, part of this move in Japanese equities has been driven by the strengthening of JPY.
FOREX MARKET
Indeed, currency moves across the board have been sharp and remain volatile as well. EUR/USD gained three big figures, as the pair touched 1.13 from just below 1.10 a few hours earlier – though the currency has now retraced to levels around 1.11 at the time of writing. The Mexican peso, perhaps the elections’ best barometer to date, weakened to a high of 20.78. In light of tonight’s developments, the Mexican central bank announced it will hold a press conference today.
PROTECTIONISM TIME
Trump’s trade policies are likely to have a bigger market impact than his fiscal policies. If he decides to launch protectionist measures against China and Mexico, Inauguration Day could be the start of risk-off episodes in markets caused by trade conflicts. The markets will shift to a risk-on mode if the trade war game ends in a Reagan- or Bush-scenario. However, there is a high risk of recession if the game ends in a trade war, depressing stock prices and treasury yields for a sustained period. In this case, the fiscal stimulus could soften the recession somewhat.