Market Moves 8th November

Transcript below:

Erica Whyte:
The American public has spoken with their 47th president of the United States being Donald Trump. So what might mean for equity markets? Our chief investment officer is here to discuss. How are you, Patrick?

Patrick Farrell:
I'm good. Erica, how are you?

Erica Whyte:
I'm okay. Let's talk about markets right now in light of this big US news.

Patrick Farrell:
Yeah, I think the surprising thing I think for a lot of market participants is the degree of strength in the majority that Trump has won, not just from the president's perspective. Taking a big portion of the vote, but also from a Senate perspective, the way the Republicans now control the Senate. And it's still an open race on the House. However, you know, it looks like it's going to be Republican House as well. So that's a clean sweep environment. Equity markets do like a clean sweep environment because it is a situation where any sort of policy changes do sort of come through quite strongly.

Erica Whyte:
They cab get it done. Right. Yeah.

Patrick Farrell:
And I think yeah, Trump has been very clear in terms of what policy initiatives are going to be. And they're very pro-business, lower taxes for longer. How the tariffs are going to sort of play out. And also the deregulation rates. So all those are very much factoring into the weight of the market has beforehand reacted to the actual results.

Erica Whyte:
So this is interesting because it's he's doing a lot of things that haven't been done before. Right. And I think that people won't really or equity markets won't really know what to be expecting because it's things that we haven't seen.

Patrick Farrell:
Yeah. So I think to to an extent, there was a lot of uncertainty to the leading into us. Is it actually going to result in the outcomes that he's expecting? I think that that that's one of the sort of key things that, yes, we can say that lower taxes are going to be good for companies. We can see the tariffs are going to protect a lot of US industry. And yeah, that's obviously a good thing from the US perspective. And some of the deregulation base is going to make it easier, less red tape for a lot of businesses. And employers to basically do what they, what they need to do. However, it's more like a shot of adrenaline into your arm. From a US economic perspective, yes, it's very good in the short term. And we were seeing that in the reflection of markets in the longer term. Yeah, a lot of those policies are going to be inflationary. I don't think anyone would of doubt that too much. And it is going to put the Federal Reserve into a very sticky position. Not just politically, because Trump has highlighted that he wants more involvement in the monetary policy decisions. That's a disaster on any fronts. And we've seen that obviously the bond yields rise quite substantially. And I think if he does start to play around with getting involved more at the Federal Reserve, I think that balance will actually take another leg. In terms price performance off the back of that, don't want to mess around with the independence of the central bank. So that's a concern. However, now that he's here and he's seeing his position, maybe there are some things he'll just sort of step back from the main.

There were a lot of initiatives that he look to unwind in terms of just the Paris accord. The tax credits, all the credits that have been applied for any sort of green energy initiatives coming through of the Inflation Reduction Act that was put in by Biden. Those are the elements that might get unwound. However, you know, it is that drill baby drill type scenario. And I think that that is concerning from the environmental perspective.

Erica Whyte:
Another thing I want to touch on here is Bitcoin has reached some all time highs. What are your thoughts on that?

Patrick Farrell:
It is interesting I think. So when we do comment about some of the cryptocurrencies you know Trump is a supporter. In terms of

Erica Whyte:
A very vocal supporter very vocal supporter.

Patrick Farrell:
Very vocal supporter and so it just takes away some of that uncertainty space. And I think in the lead up to the election it did feel like it was quite close. Call pollsters to get it wrong. In terms of how close it was going to be. But now those those let's say those securities that are basically benefiting from some of the initiatives that we're talking about, understand that there are very few real policy initiatives that have been highlighted in terms of detail that still needs to come through. The intent is probably there, but the detail in the policy is not there yet.

Erica Whyte:
And so there's a lot of talk so far, not a lot of action.

Patrick Farrell:
A lot of talk how we get down to the action base will be very telling over the course of 2025. And then the fall from that is how much is it going to cost taxpayers effective because whatever they can't raise revenue, they have to fund it through debt. And so situation in the US is already dire. So higher sort of fiscal deficits, just going to result in more and more debt that needs to be issued. Who's going to buy that? Who's going to pay for it and understand to that the rest of the world is going to have to pay for some of these protection initiatives that are being put into the US. So this is what Europe is basically suffering to a degree. Even though these issues have basically bounced back a little bit this morning. So we just need to wait and see.

Erica Whyte:
So how might or should the central bank react to this. Because again, this is kind of unprecedented stuff.

Patrick Farrell:
It's a it's a very tricky situation for the US central bank at the moment because Jerome Powell has highlighted that he needs to see inflation go down as well as other members. Now, when we're looking into the future and we look at where the balance of risks, to inflation versus growth, a lot of the numbers that we've seen more recently have much stronger on the bright side. And that's been a surprising elements. So we change tack in terms of the situation in the US moving from a hard landing recession talks about rare to a no landing scenario. And we're just going to continue to pay our own. Now if I'm a central bank, I'm going to look at that and I'm going to say, well, the balance of risks to growth side. Now is a lot more in equilibrium, however, with some of the. Yeah, with the initiatives that are potentially being framed here, from a fiscal policy perspective, that's going to be inflationary. Do I need to keep rights higher in order to sort of stem some of the inflationary impacts of the coming through from his growth policies? If he does that, then he essentially puts a lot more focus on the fact that, if he doesn't cut rates and if the central bank doesn't continue to cut rates, then, you know, he's he's going to have to deal with the ramifications of more pressure coming down to the central bank for prisons. That's a very dangerous situation. And it's an extremely slippery slope. So yeah, I think what we need to do is highlight that from an investor perspective, the independence of the central bank is imperative for the continuation of smooth economic policy. And the way that central banks look at this is the translation mechanism of the monetary policy tightening or cutting, actually using to translate into how the economy bank is expected to perform going forward.

And it's all supposition on expectation. It's not anything necessarily about what the present situation is. So it does put the fed in a very compromised position. However. Yeah, this is a political position. You know, the, chairman of the Federal Reserve is the president's appointment. So no matter what Powell is going to be a very sort of sticky situation and any sort of change at this particular point, I think it's going to be reflected in volatility in markets.

Erica Whyte:
Absolutely Spare and developing stories here. Patrick, thank you so much for all that expertise. That was great.

Patrick Farrell:
Thanks Erica.