Both stock and currency markets staged a remarkable turnaround yesterday, wiping away the anticipated Trump impact to leave the S&P up more than 1% on the day and the dollar firmer against nearly all major currencies. Gold saw a hugely volatile day, seeing the largest one day trading range since the Brexit vote back in June. So why the change in view? The negative tone seen in Asia was probably overdone, but from their perspective validated by the fact that a more protectionist US administration would hurt them hard, harder than Europe. The pickup happened before Trump’s acceptance speech, but markets took the more conciliatory tone as suggesting Trump the President may be less maverick than Trump the candidate. The stocks that did best were those that were hoping for less regulation (banks, pharma) as well as those were hoping to benefit from increased infrastructure spending. As for currencies, the Mexican peso remained down in the dumps, the proximity and dependence on the US meaning that they could not take on such a positive tone.
Trump said that the vote was going to be Brexit “plus plus plus”. Despite what you often seen in the headline, the UK has not left the EU. Similarly, Trump is not President for another 51 days. During that time, he’s either going to continue to calm markets, but also may stoke up tensions in certain areas. The truth of the matter is that we just don’t know at this point in time. None of today’s scheduled events or speakers are going to over-shadow the post-election tone in markets. At one point, the markets were putting less than 50% probability of the Fed hiking rates in December, but that’s now changed to see pricing back above 80%.