Global capital markets roiled by Trump's stunning victory - BBH

Research Team at BBH, suggests that the global capital markets have been roiled by Trump's stunning victory, and the Republicans hold of both houses of Congress.  

Key Quotes

“The initial reaction was dramatic and severe.  The dollar and equities were crushed and bonds rallied as the message from the electorate was clear.  However, in late Asia, the markets reversed and early moves were retraced.  

Trump's policy prescriptions were mostly defined by opposition to the status quo.  Trump advocates the repeal of the Affordable Care Act (Obamacare) and Dodd-Frank, the omnibus financial regulation.   He wants to clamp down on immigration.  These three positions appear to enjoy widespread support among Republicans in Congress.  Traditionally, the Republican Party has been more associated with free-trade, but Trump wants to re-open trade agreements.  The next focus will be on Trump's cabinet picks.  Speculation begins immediately.  

The implications of US monetary policy are not immediately clear.  A December rate hike was the most likely scenario, and it still is, provided that the global capital markets are stable.  Presently that seems to be the most likely consideration to deter the Fed from hiking.  

The Brexit shock has been followed by the US electoral surprise.  Leaving aside the demographics and the polls, the common element is a retreat from the path of at least the last several decades.   Is continental Europe next?  The French center-right party, recently renamed Republicans, will hold a primary on November 20, with the second round on November 27.  In early December, Italy holds a referendum on constitutional changes (reducing the role and size of the Senate).  Next year, there are Dutch, French, and German elections.  The odds of a UK election and even an Italian election are not negligible.

EM currencies are under pressure.  As one would expect, the Mexican peso is being hit hardest.  After trading as low as 18.16 yesterday, USD/MXN spiked to a new all-time high near 20.78 in Asian trading before settling back to trade around 20 currently.  As North American trading begins, all eyes are on Mexico policymakers.  The Finance Ministry and Banco de Mexico will hold a press conference this morning at 8 AM ET.  Measures to support the peso are likely to be announced.  However, with the peso stabilizing, policymakers there may keep their powder dry until the dust settles further.  The dilemma is stark, as rate hikes and spending cuts would simply add to the headwinds already on the economy.”