By Alan Furber, CMC Market
- Wall Street traded higher on Wednesday in one of the most bizarre trading days in history.
- The whole world watched as Donald J Trump was chosen to become the 45th President of the United States of America.
- Conventional wisdom suggested Wall Street wanted a Hillary Clinton victory and a Trump win would be disastrous for risk assets due to the uncertainty it would doubtless create.
- This was borne out in the run up to the vote as stocks dipped on anything that seemed to harm Clinton’s chances of reaching the White House.
- As the results rolled in on Wednesday morning in Singapore, financial markets tanked across the globe.
- S&P 500 futures lost around 5% on the news as risk appetite vanished and investors headed for safety.
- In a surreal twist to a surreal election however, stocks not only pared losses, Wall Street rallied to close higher on the day.
- Some analysts have cited Trump’s toned down, conciliatory victory speech and Clinton and Obama’s call for unity, however ultimately the move looks puzzling.
- Pharmaceuticals rallied as did financials. Clinton had promised to control drug prices and Trump is seen as being likely to loosen restrictions on big banks.
- Republicans now control both houses and are set to install their man in the White House, leading to the prospect of sweeping reforms which many see as positive for short-term growth.
- The Dow Jones Industrial Average added 1.4% to 18,589.7, whilst the S&P 500 added 1.1%. The Nasdaq also finished 1.1% higher at 5,251.0.
- It was a similar turnaround for European markets as huge losses on the open turned into gains on the day.
- The UK’s FTSE 100 closed up 1%, Germany’s DAX added 1.6% and France’s CAC 40 added 1.5%.
- Asian markets reacted violently to the election results and mostly ended with deep losses.
- The Nikkei 225 shed 5.4%, the Hang Seng shed 2.2% and China’s CSI 300 lost 0.5%.
- Markets however look set to follow America’s lead and reverse losses this morning. Australia’s ASX 200 was strong on the open and is trading above pre-election levels.
Currencies
- The US dollar reversed its fortunes following sharp losses against all of major peers.
- The dollar index is up against all of its major peers to trade 0.7% higher at 98.50 this morning.
- USD/JPY lost around 3.5% in the space of a few hours to test 100.00, only to recover all its ground to break back above 105.00, at 105.60 in early Asian trading this morning.
- Initially, investors sold the dollar and headed for the safety of the yen on the uncertainty surrounding a Trump win, however amid the panic some investors remained calm and bought the dip.
- EUR/USD saw similar swings, spiking to test round-number support at 1.1300 before sinking back below 1.1000 this morning.
- The Aussie dropped initially on the election results, but failed to pare all of its losses.
- The currency is unsure how to react but gained support from commodity prices to trade around 0.7660 this morning, with a long-term uptrend intact and potential resistance at the 23.6% Fibonacci level;
The biggest loser on the day was the Mexican peso which lost as much as 12% and failed to recover much ground.
- A Trump presidency is seen as disastrous for the Mexican economy and it’s difficult to see a recovery in the near term.
- The peso was being traded as a proxy for the election and there may have been some big wins for anyone betting on a Trump victory.
- The Kiwi was little changed following the RBNZ interest rate announcement this morning which saw rates left untouched, as expected.
- There was little in the tone of the statement to worry investors that the central bank may cut in the near term.
Commodities
- Crude oil prices behaved in much the same fashion as the rest of the market, recovering from the initial shocks.
- Brent futures added 0.7% to settle at $46.36 a barrel, while US crude futures rose 0.6%to settle at $45.27 a barrel.
- It’s unclear whether a Trump presidency will support oil prices in the midterm, particularly given his stance on Iran’s nuclear deal.
- Gold prices hit highs of around 1,330 yesterdays as investors headed for safety.
- The precious metal gave back all of its gains as the market calmed to trade at pre-election levels of 1,280 this morning.
Singapore
- The Straits Times Index closed 1.1% lower at 2,789.9 on the shock US election result.
- USD/SGD rallied as the US dollar strengthened and headed towards key support/resistance at 1.4000.
Key events (Singapore Time)
Alex Furber is a Sales Trader at CMC Markets Singapore