Markets rally after US election shock

European stock markets have regained ground after an early morning sell-off sparked by Donald Trump’s unexpected victory in the US presidential election.

Against expectations, the Dow Jones opened 70 points higher when trading commenced on Wall Street before easing back. The Republican candidate’s pledge to spend billions of dollars on renewing the US’s infrastructure helped to calm the markets.

Commenting on the shock result, Mark O’Toole, vice president of commodities and treasury solutions at OpenLink commented

“Companies cannot ignore macro-economic events. Those that failed to learn lessons from what happened with the Brexit vote (where the polls and pundits had it wrong), and didn’t take protective measure by hedging their risk may find themselves on the wrong side of the bet today.

“The Mexican peso (MXN) is down nearly 11% and the companies that failed to hedge will be taking an earnings hit much like those exposed to the impact of the Brexit vote and we may see that impact on their earnings.

“The real question now is how will Trump bring the country together after such a divisive election. In the meantime, the markets are reacting very strongly. This uncertainty will continue to impact markets and the Fed until everyone has a real sense of what will happen next.”

David Lamb, head of dealing at FEXCO Corporate Payments, commented: “America’s Brexit moment has sent stock markets reeling, but there’s a key difference – unlike the pound in June, the dollar has remained surprisingly steady.

“Knee-jerk falls against other major currencies were soon reversed, and against both the euro and the pound the dollar is back to where it was when the polls opened. In part this is down to the pound having lost its safe haven status. Right now, many see swapping dollars for sterling as jumping from the frying pan into the fire.

“But it’s more a case of stoicism among dollar watchers – who are so far gripped by paralysis rather than panic. The President Elect’s moderate victory speech has settled nerves to a degree, and there is at least consensus on one thing – America is taking a leap into the unknown and the potential for dollar volatility beckons.”

In response to the earlier market falls in Asia and elsewhere, Nigel Green, founder and chief executive officer (CEO) of deVere Group said: “The markets are reacting this way not only because Trump is perceived to be wanting to stir up the status quo, but also because he has some controversial protectionist policies that could impede sustainable global economic growth.”

Writing in The Guardian, Graeme Wearden noted that after an initial panic, the financial markets are coming to terms with the shock victory. “Trump’s call for America to “come together as one united people” has provided some comfort to shell-shocked investors. They are hoping that the president elect, after running such a divisive campaign, may be planning to soften his rhetoric.”

Currency volatility

“Trump assured that his victory was going to be “Brexit plus”, and he may well be right, said Philippe Gelis, CEO and co-founder of FX management software specialist Kantox. “Once again investors have been caught off guard, and the victory of the republican candidate has triggered a risk averse reaction, boosting currency volatility across the board.

“It is highly likely that currency markets will remain especially volatile during the next few days, and weeks. Markets hate uncertainty and Trump’s rhetoric against international trade deals, and the aggressive position towards China, are promising a fair share of it.

“This poses an extremely challenging scenario for international businesses whose income statements depend on the stability of foreign exchange. Financial managers need to act now, revising the company’s currency policy to adapt to a changing environment.

“This means defining a rational target exchange rate and establishing the amount of risk the company is able to absorb without profits being significantly affected. They then need to find a tool to execute that strategy in a reliable manner. These are undoubtedly the key elements required in order to hedge the company’s profit margins from currency fluctuations.”

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