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Markets overcome initial Trump panic

Global markets expected Hillary Clinton to win the White House in the US Presidential race, but soothing words from Donald Trump in his acceptance speech have limited any market jitters.

Garry white employee

by
Garry White

in Features

10.11.2016

Donald Trump’s victory in the US Presidential race was a shock to markets, but the reaction to his win has been relatively sanguine. As it became clear that Hillary Clinton would not gain enough Electoral College votes to win the White House, Asian shares dropped in every market throughout the region. Japan’s Nikkei index slipped 5.4%, Hong Kong’s Hang Seng index was down 2.2% and the Korea Stock Exchange index dropped 2%.

However, Mr Trump’s acceptance speech calmed markets, calling for all Americans to “come together as one united people”. His victory speech featured a number of references to rebuilding the country through infrastructure projects.

The yield on US government debt also rose, after sliding overnight, as markets expect borrowing will increase to deliver his infrastructure spending and tax cut promises. A Republican President, House and Senate also suggest any gridlock can be avoided and the spending plans be made a reality.

The peso slid more than 10% due to Mr Trump’s pre-election rhetoric about immigration, wall-building and the movement of low-skilled US jobs to the country. Hard hit by the slide in the Mexican currency was Spanish bank BBVA (-7.5%), as it has the most significant exposure to revenue from Mexico of all European banks. Tate & Lyle (-8.1%) shares also were hit because of its exposure to the peso.

Emerging markets fell following protectionist pledges from Mr Trump in the campaign. However, Russian shares rose as Mr Trump has indicated his willingness to improve relations with President Vladimir Putin. The Russian blue-chip MICEX index gained 1.4%.

Expectations before the market opened were for a fall in the FTSE 100 of more than 3%, but the blue-chip index opened about 2% lower before gains were pared. In mid-morning trade, it was down just 0.2%*.

Precious metals and pharmaceuticals shares led the UK market. Drugs companies such as Hikma (+7.5%) and Shire (+7.7%) rallied sharply. Precious metals are regarded as a safe-haven in times of turmoil, so miners Fresnillo (+9.3%), Randgold (+7.5%) and Polymetal International (+5.8%) gained. UK companies exposed to US infrastructure spending also fared well, including Ashtead (+6.4%) which generates about 85% of its earnings in the US, and aggregate group CRH (+5.6%).

Defence companies were also in favour. Mr Trump’s victory has raised concerns about the future of NATO after he said that the US may not come to the aid of allies if they were attacked. This has raised speculation that defence budgets in Europe could rise because of the uncertainty, benefitting companies such as BAE Systems (+3.6%).

The biggest fallers in the UK market slipped on unrelated issues. J Sainsbury (-5.2%) shares fell after it posted a disappointing set of first-half results, with like-for-like sales fell 1% in the 28 weeks to 24 September. The news hit rivals Tesco (-2%) and Wm Morrison (-1.8%). Experian (-4%) and Burberry (-2%) shares also fell following their interim results statements.

US markets are expected to The FTSE 100 actually ended the day up 0.9%fall at the open, but not by as large an amount as previously thought. Interest rate futures indicate the Dow Jones industrial average will open down about 325 points.

*UPDATE: The FTSE 100 actually finished the session up almost 1%

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