And the day after
Capital markets are not just instruments of finance and economics. In the developed world they area also a key barometer of almost all important things under the sky, especially politics. And, in this context at least, the shock of the recent US election was not much of a surprise, in hindsight. At first the markets didn’t expect it at all, which is surprising. Clearly Mr Market had positioned for a Clinton win – and a convincing one at that. That is why news of Trump’s victory rattled currency, equity and interest rate markets across the world. Stocks tumbled from the Americas (naturally), to Europe (understandable) and even to Asia and Asia Pacific (strange). Even Aussie interest rate predictions suddenly positioned for a hike, foreseeing trade protectionism and what not.
The dollar too, usually a safe haven currency of choice, initially fell through the floor. So did the Mexican peso – worst hit ever (12pc) for understandable reasons – and currencies across the board. The Russian rouble, tellingly, soared. But then, as Mr Market digested the shock, a correction of sorts was clearly at play. The dollar rebounded. As did US indexs. European equities began stabilising.
Slowly the market showed signs of solid expansion down the road. Copper, referred to as Dr Copper in market lingo, rose. This means the market is pricing in construction and expansion. Bets that US interest rates would rise dropped from eight-something percent down to the thirties, implying that Trump would spend even at the risk of bloating the deficit. Oil is more complicated. The majors were clearly pro-Hillary, not the least because of her Wall Street connections (and funding), and fell. But Black Gold is influenced by way more than just US politics, no matter how over bearing. There’s Middle East politics – with its wars and rivalries – and the Saudi situation at that particular point in time. Needless to say there are numerous complications there. But the rouble uptick indicates expectations of Trump following through on checking the Saudis, which means oil will move again in months to come. The markets, meanwhile, are urging calm following a very serious, and very real, shock.
