A Trump victory is now declared, with both the House and the Senate set to remain under Republican control. The markets had put a relatively low probability on a Donald Trump victory with the majority of reputable polls having indicated a win for Hillary Clinton.
As a result, it is not surprising to see an initial shock reaction hitting most risk assets such as equities and the currencies of areas at risk from Trump’s policies such as Mexico, Asia and Canada.
However, similar to Brexit, the initial panic may be followed by a recovery of sorts as the market tries to price in the uncertainty around how much Trump will follow through on his campaign promises and the extent to which he can expect support from a Republican Congress.
It is encouraging that his initial message was positive and focused on unity stating that he wants to be the president for all Americans and engage with global partners on a fair basis. Whether that’s just rhetoric, of course, will remain to be seen.
Whatever happens, it is going to take time for the new administration’s agenda to become clear, let alone be implemented. He is the first US President to be elected who has never held formal political office nor a position in the military, so there are a lot of unknowns in how he will take decisions, and how he will fill his transition team.
In the medium term, President Trump’s protectionist agenda may weigh on global growth if pursued, with looser fiscal policy providing some offset. In combination, these measures could also lead to higher inflation. The global economy should continue on its current path of a synchronised pick-up in growth, which should help market sentiment.
However, this election result reinforces the sense that populism is on the rise globally and concerns are now likely to focus on how this phenomenon could impact other forthcoming elections.