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Portfolio > ETFs > Broad Market

Market Turmoil Eases as Investors Weigh Trump’s Plan for Economy

By Stephen Kirkland

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Turbulence in financial markets calmed after a knee-jerk selloff in stocks and rally in haven assets as investors reassessed the effects of Donald Trump’s surprise victory in the U.S. presidential election.

After initially sliding the maximum allowed, futures on the S&P 500 Index pared losses along with European equities, while the yen and gold scaled back gains. Longer-maturity Treasuries sold off and copper soared to a 15-month high on speculation Trump will increase spending to spur economic growth. Swaps traders cut wagers on a Federal Reserve interest-rate hike next month. Mexico’s peso led emerging-market currencies lower amid concern U.S. trade policies will become more protectionist.

“It’s an amazingly impressive recovery off the lows for risk assets,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “It’s very surprising given the feel the session had to start with, that it was a massive risk-off flight to quality bid. Now the early losses are getting erased and it looks like it could go unchanged on the day by the time the U.S. gets in.”

A Trump victory had been portrayed by analysts as having the potential to unhinge markets banking on a continuation of policies that coincided with the second-longest bull market in S&P 500 history. Going into the vote, most polls showed Democratic candidate Hillary Clinton ahead and websites that took bets on the victor had put her odds of winning at 80 percent or more.

Trump has pledged to clamp down on immigration to the U.S. and renegotiate free-trade agreements with countries including Mexico. In his victory speech, he pledged to focus on rebuilding U.S. infrastructure.

“It’s time for America to bind the wounds of division,” Trump said as he addressed cheering supporters in Manhattan. “I pledge to every citizen of our land that I will be president for all Americans.”

Stocks

S&P 500 futures tumbled by the maximum 5 percent loss permitted on the Chicago Mercantile Exchange before trading curbs are triggered, then pared their decline to 2.2 percent as of 6:11 a.m. in New York. The restrictions last came into force in the wake of the Brexit vote and set a floor price for the contracts through the remainder of the overnight trading session.

The Stoxx Europe 600 Index fell 0.8 percent after sliding as much as 2.4 percent. Equity indexes in Germany and France fell at least 0.7 percent. Losses were tempered by a rally in health-care stocks, which have suffered amid speculation Clinton would push for drug-price controls as president. Novo Nordisk A/S, Roche Holding AG and Shire Plc jumped at least 6.5 percent.

The MSCI Emerging Markets Index dropped 2 percent, the most in almost two months, amid concern over Trump’s protectionist policies. Hong Kong, South Korea and Taiwan suffered the biggest losses.

Russia bucked the trend on speculation Trump will improve ties with Moscow, leading to an end to sanctions that have stalled an economic recovery. The Micex Index climbed 1.4 percent.

Currencies

Mexico’s peso tumbled to a record 20.7818 per dollar and was the worst performer among currencies worldwide. Other higher-yielding currencies fell, with South Africa’s rand weakening 3.1 percent and Brazil’s real down 1.9 percent. South Korea’s won and Turkey’s lira both fell 1.3 percent.

Currencies viewed as havens strengthened, with the yen climbing 2 percent. While the euro gained as much as 2.5 percent, it gave up much of that advance to trade 0.7 percent stronger.

Bonds

The Treasury yield curve steepened, with the rate on 30-year bonds surging 13 basis points to 2.75 percent and the two-year yield sliding four basis points to 0.82 percent. The 10-year yield climbed five basis points to 1.91 percent after falling to as low as 1.71 percent.

“Fiscal stimulus seems to be the most logical explanation, with Trump and a Republican Congress expected to deliver higher deficits,” said Gennadiy Goldberg, an interest-rate strategist in New York at TD Securities (USA) LLC, one of 23 primary dealers that trade with the Fed.

The market-implied chance of a December rate hike fell to as low as 47 percent, based on U.S. overnight indexed swaps that trade 24 hours a day. That compares to 82 percent at 5 p.m. in New York on Tuesday. The OIS-derived probability tends to be a few percentage points lower compared to calculations based on fed funds futures.The cost of insuring corporate debt in Europe against default pared earlier gains. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose two basis points to 75 basis points. It earlier touched 78 basis points, the highest since early July. A gauge of swaps on junk-rated companies increased nine basis points to 334 basis points. Both indexes were still up the most since September.

Commodities

Copper led gains in industrial metals, rising as much as 4 percent to $5,443 a metric ton, its highest since July 2015. Nickel advanced nickel climbed 2.4 percent and lead advanced 1.1 percent.

Gold pared its biggest surge since the U.K.’s Brexit vote in June as a rush to haven assets abated. Bullion for immediate delivery was 2.2 percent higher at $1,303.80 an ounce, compared with a gain of as much as 4.8 percent earlier in the day.

West Texas Intermediate crude was 0.2 percent lower at $44.89 a barrel, after losing as much as 4.3 percent. Brent was down 0.2 percent at $45.97.

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