Carnage, unlikely

According to one Sunday paper, Tuesday’s presidential election result could end in carnage for global markets if Donald Trump is elected. We seriously doubt it. History tells you few things, firstly when newspapers predict a crash it rarely happens, and secondly America is a great big democracy which is unlikely to let one man try and destroy its economy. History is also littered with examples of the statements of a man trying to get elected, and his desire or ability to affect the changes he describes when in office is another matter.

We should be reminded that the Brexit vote, which many decided ahead of the day, would create carnage has had an impact on the pound but ultimately limited effect on global markets and the global economy. A Trump victory may well be greeted in the same way with an initial reaction and then things calm down.

The greater uncertainty may be caused if the result is a close one and either one of the candidates accepts the result, then there may be a period of limbo which could cause further volatility. The other concern may be that should Trump be elected Janet Yellen will resign, hopefully common sense will take over on both sides. Sadly, neither candidate appears to be suitable to hold the office, but we will be stuck with one for four years.

The pound had a better week helped by the decision by Mark Carney to stay on until 2019, and the high court ruling that threw more uncertainty over quite how Brexit will be achieved, or indeed if it will be.

European markets fared far worse than the US one, considering it’s the US election that seems to be the catalyst for the market correction. The FTSE 100 fell over 4% in the week. The S&P 500 finished Friday little changed from where it started the day, and for those who believe in the technical analysis at 2085, this is just above the two hundred day moving average of 2082. However, the index has posted its longest losing streak since 1980. The FTSE 100 index has now lost over 6% from its recent highs. It may be worth noting that despite the recent volatility in equity prices yields on US treasuries are little changed from a month ago.

Looking to the week ahead it’s hard to see beyond Tuesday’s vote. The polls over the weekend apparently continue to show Hillary shaving it. The spread betting indexes which had put Donald close to 3/1 at the end of the week have now widened again to 4/1. Everything will soon be revealed whether Mr Trump will be redecorating the Whitehouse or back on the golf course.

Posted on November 6, 2016 .