Following Donald Trump’s victory at the 2016 United States presidential election, global financial markets were shaken, stocks and commodities slumped, and currencies fluctuated wildly.

By Wednesday, markets had recovered as investors shook off the shock of a looming Trump presidency and began to focus on whether Trump’s policies would spur a still-fragile global economic recovery.

By Thursday, the Dow Jones had hit an all-time high, defying many predictions of a market meltdown following Trump’s win.

“Clearly it is too early to fully assess the implications of the election result on markets, politics and the economy,” stated a press release from asset manager Standard Life Investments.

Nevertheless, Standard Life Investments was able to make some broad projections based on existing information.

Heightened insecurity

Trump’s looming presidency is injecting significant uncertainty in the outlook for government policy, economic activity, and the US Federal Reserve.

“Market volatility has spiked in reaction to the result and we expect this to continue over the coming weeks amid speculation about his likely policy agenda. However, we stress the importance of not overreacting and waiting for clear announcements of priorities,” the report cautioned.  

Proposed tax cuts and looser regulation

Trump and the House Republicans have placed tax cuts and corporate tax reform at the heart of their fiscal agenda. The president-elect has also advocated a large increase in infrastructure spending. As Republicans are also controlling the Senate, this implies a probable loosening of fiscal policy from late 2017 into 2018. However, fiscal conservatives in Congress may seek some offsetting cuts in other areas of discretionary spending.  

Increased trade protection and reduced immigration

Trump has also pledged to increase trade protection and reduce immigration to the United States—policies that would simultaneously weaken economic growth and increase inflationary pressures.

“It is plausible that the new administration will not ramp up tariffs on Mexican and Chinese imports, content instead to bury the prospect of new trade agreements and make more use of enforcement clauses in existing agreements.”

It’s likely the Trans-Pacific Partnership, a trade agreement among 12 of the Pacific Rim countries (excluding China), won’t push through.  

US interest rates might spike

Fed delays might increase US interest rates into 2017, as greater clarity on market and policy outlook is needed. However, once the noise dies down and it becomes clear that fiscal policy is set to become more expansionary, the Federal Reserve will likely recommence lifting its policy rate at a faster pace than it would have had the policies under the Obama administration been maintained.

“Should President Trump prove to be serious about pursuing a more protectionist policy agenda, the negative consequences for economic activity and corporate margins could easily offset the benefits of fiscal easing. This would prevent the Fed from increasing interest rates for some time.”

Market implications

Trump’s victory has led to a significant “risk-off” move in markets, with short-dated bonds rallying modestly and risk-assets, including equities, declining considerably. The US dollar has been broadly stable on a trade-weighted basis. However, it has depreciated against the major developed currencies and appreciated against emerging market currencies, particularly the Mexican peso.

The negative outlook could last several weeks. However, the medium-term implications for markets depend on the actual policies of Trump and what can be negotiated via Congress.

“The direction of the US dollar will be influenced by a number of forces in the medium-term, including whether fiscal policy is loosened and a repatriation tax is implemented, as well as the shape of trade arrangements. We expect government bond markets to be supported in the near-term but, as is the case for the dollar, the medium-term impact will depend on the policy mix.”

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