In something that sounds like an Aaron Spelling soap opera, there has been a Bush or Clinton in the Whitehouse since 1980. It would seem the average voter in the USA is changing channels, and no longer believes this Dynasty should continue.
The prospect of a Trump win is turning markets and geopolitics on its head. The US dollar has responded by strengthening vs the Australian Dollar, and obliterating the Mexican Peso by 14%. The US Federal Reserve was expected to raise interest rates (with an 80% probability) ahead of the election, and now this has fallen to 35%. Trump has been a vocal critic of Fed Chair Janet Yellen, and has been quoted as saying he’d fire her. This is not The Apprentice.
Trump has spoken at length of protectionist policy. Tearing up free trade agreements like NAFTA and the recently minted Trans Pacific Partnership. He has also accused China of meddling in currency markets, and claimed the Middle East should be paying America for military support.
A new world order looms, and of particular interest is how much of this rhetoric gets enacted. Should Trump take on alleged steel dumping by China, or institute tariffs on Japanese autos – these would have a significant indirect effect on Australia. China is our number one trade partner taking $98b of our exports - the bulk being commodity related. This is closely followed by Japan, with $50b. The USA is our 3rd largest partner, but Australia is a net importer of goods. If Trump gets tough on trade, he may also expect Australia to have a greater role in the South China Sea – pitting us against our main partner.
A key mantra of Trump is (no surprises) cutting company tax rates. He’s keen to onshore a lot of the money that clever accounting is keeping in tax havens. By moving tax rates from 30% level to around 15%, he believes this will increase his tax base and make American companies more competitive.
Possible implications for markets are vast. In the short term, it is easy to see greater volatility and then a period of stabilisation as investors digest information. This is not dissimilar to the Brexit reaction. However the true question is how much of Trump’s bluster is real, and what will be the makeup of Congress? This is something the world is waiting to see.
