Originally published by Chamber of Merchants
The world and markets are about to react to the very real probability that Donald J Trump is about to become the 45th President of the United States of America. We’ll keep you updated with perspectives on revelations of Hillary Clinton’s unexpected FBI investigation, Donald Trump’s bid for the White House and its impact on global financial markets. Ladies and Gentlemen, boys and girls, we’re about to hit #Trexit.
What is #Trexit?
While the world has been occupied with daily commentary on the long and drawn out process of #Brexit, it has been taken for granted that the very real probability of a Donald Trump election victory would create a far more powerful, distorting and lasting impact on the global financial world.
The last several weeks have demonstrated that the markets and global players have become complacent:
The US Dollar has been rallying, the Nasdaq 100 and S&P 500 maintain all time records highs, while the proxy for the election outcome, the USD/MXN, has been traded like a toy for entertainment on what appeared to be a sure bet that Hillary Clinton would be the next US. President and the first female President of the United States of America.
#Trexit is the viral, populous concept that Donald Trump’s victory over Hillary Clinton will signal the beginning of a divergence from the current pathway that the United States and the globe has been set on, ushering in a completely new direction for political policy, foreign policy and strategy as most prominently, trade and finance.
#Trexit is potentially the largest shock to hit the global financial stage and the obesity of complacent global markets is about to be shed by a world of uncertainty, worry and volatility: in other words, Chaos.
Forget about the polls, forget about the debates, forget about everything you assumed over the past few days, weeks and months: pandora’s box is open and there’s no telling what voters are about to decide.
The Elections Up to Friday 28th October 2016
Up till Friday the 28th October 2016, it appeared to be plain sailing for Hillary Clinton. Her campaign had been basking in the sunlight while Trump’s presidential campaign continually suffered from entanglement with bad publicity, revelations and scandals. Celebrities, influencers, polls and markets pointed in one direction and Hillary Clinton only needed to cross the threshold into the oval office to make it official.
Media Circus
Meanwhile, media coverage over Donald Trump had become increasingly bombastic as one Bloomberg correspondent asked him at his recent hotel opening, "Are there imported materials used in the construction of this hotel?".
Posing this question to a business person, in an interview, while the “reporter” used an imported microphone & recording equipment, while wearing a European suit and tie demonstrated the extent of the media circus which had evolved.
It had become the Medieval equivalent of throwing rotten fruit and vegetables, mainly pumpkin (given the nominee’s complexion), at his public face, fortune and reputation. All made more palatable by the basic assumption that Donald J Trump would never be president of the United Stated of America.
And this is what he signed up for the day he declared is intention of running for the oval office. That’s politics.
That’s our world. That’s life.
USA GDP - Miracle or Fluke ? Neither. Soya Beans and Bad Math.
Let’s be clear: A Clinton victory is a Democratic party victory, be it for better or worse. During the last 8 years, Central Bank monetary policy has been on a mission to recover the USA and the world from the 2008 financial crisis. Recently, the Federal Reserve and the Obama administration’s success has been overshadowed by waning economic figures such as a growing unemployment rate, increased initial jobless claims and anaemic inflation [understated in many respects].
Whoever the incumbent party is at any given time, the economic numbers, after two terms, are an accurate reflection of the political party’s policy efficacy. The third quarter GDP results therefore, were of utmost importance as voters received the final confirmation of whether a continuation of the current economic approach for another four years would be favourable for economic growth.
On the surface, it was. Friday’s GDP of 2.9% for the third quarter converted traders from a “wait and see approach” to a “definite” interest rate hike in December.
Interestingly, the unexpectedly high GDP is a direct result of a once of record export of Soya Beans as reported by Tyler Durden at Zerohedge. This was also pointed out by the economist Peter Schiff, as a convenient blip on the economic radar as a final show of government victory prior to the elections. Mr Schiff also pointed out that the third quarter GDP for the US economy was based on a different inflation formula. If the Soya bean saga were nullified and the same inflation coefficient were used as for previous quarter, then the GDP for Q3 would be closer to 1.1% which would be in line with the last few quarters.
Perhaps markets picked up on the anomaly as the US dollar failed to rally to new heights, while gold, initially being sold off, usually inversely related to the US Dollar, caught a bid, rising an additional $10 to $1274 per ounce. Gold is a safe haven asset, hence it’s powerful rebound, with the U.S Dollar being sold off, struck many as odd.
Hillary F.B.I. Investigation Reopened 11 Days Before the U.S. Elections
Hours later, a sell off in the US dollar, a rally in the price of Gold and a dip in the NASDAQ and S&P 500 was triggered by the revelations that James Comey, current Director of the Federal Bureau of Investigation, had released a letter to congress in which he stated that the FBI would be pursuing a renewed investigation into Hillary Clinton’s email activities due to new evidence obtained. Many journalists, as you read this, already dismiss the emails, citing that Comey himself is not aware of the contents of the new emails. However, to dismiss an historic move by the FBI, to open criminal investigations against a presidential candidate, 11 days prior to the elections would be naïve at best.
It is also flippant to neglect the gravity of the move against Clinton by the Director of the FBI.
The Director of the FBI is, after all, appointed by the President of the United States, confirmed by the United States Senate. 11 days prior to the most dramatic presidential elections in recent history, Comey, as director of the FBI, has pressed ahead with a renewed investigation into what the polls would indicate, so far, would be the next US President’s email [potentially criminal] activity.
We need the ask the question:
If Hillary Clinton were about to be elected as US President, why would the director of the FBI risk such a public shock, knowing that within 11 days he would be facing dire consequences with his reputation and career at stake?
Perhaps he is confident that Hillary Clinton would not be his superior in 11 days.
Perhaps. Perhaps. Perhaps.
Once again, dismissing the new investigation as impertinent, would be to do so in a vacuum free of the realities and incentives behind such a development. The New York Times suggests that the new email evidence may be as insignificant as a message or two to an assistant about coffee. Here, at the Chamber of Merchants, we do not clutch to ideas of comfort.
We look at facts.
And the fact is that 11 days prior to the election, the presidentially appointed director of the FBI revealed to the world that evidence has surfaced that compels the FBI to further investigate Mrs Clinton.
The action speaks louder than words.
The risk speaks louder than action.
The impact is about to reverberate through the world and it starts Monday morning during Australasian / Asian trading.
What to expect?
During the shock of #Brexit, we witnessed market turmoil that was swift and significant. If the risk of #Trexit can be compared to #Brexit then we should expect a similar, if not more powerful, impact leading up to, during and after the US presidential election.
Expect volatility as confidence gives way to uncertainty across the financial markets, starting with Asia which is at risk of losing the Trans Pacific Partnership agreement.
Expect corrections as funds that supported the Clinton campaign start to do withdraw their support from the stock market which is currently on stilts having been unable to retrace naturally for months.
Expect a sell-off in the US Dollar and a surge in safe-haven asset purchases such as the yen, gold and silver.
The globe operates on confidence of certainty and, in its absence, the notion of Donald Trump as the 45th American President is about to become a very real consideration for fund managers, traders and governments across the globe.
Of course, this dire scenario will not materialise if, as some say, the new evidence is little more than requests for coffee and donuts by a famished and healthy Hillary Clinton.
Stay Tuned.
Stay tuned as we keep you up to date on the significant impacts on markets and the elections as they unfold.