Markets Sink As Trump Win Projected

Daily Analysis - 09/11/2016

Election Results Crush Risk Assets as Haven Assets Surge Higher


Equities and the US dollar are tumbling as the US election results are compiled.  Current vote totals show Republican presidential candidate Donald Trump winning the election by a surprisingly large margin, sending risk assets slumping as haven assets such as gold, the Yen, and Franc higher on the session.

Trump Pulls Ahead

As the vote totals stream in, the Republican Party looks poised to take control of the White House and both houses of the legislature as final vote tallies are made.  Despite votes still being counted, Trump managed to carry key battleground states, notching victories in some states that had not seen a Republican victor in decades.  Financial markets have reacted with sheer turmoil as the anti-establishment candidate takes a commanding lead, with most media outlets reporting a high degree of certainty that Trump will be the next President of the United States.  US stock futures have plunged, with S&P 500 futures down -3.83% on the session, with losses outpaced by tech-weighted Nasdaq futures which have slumped -4.32%.  While Hillary Clinton’s camp has yet to concede defeat, financial markets continue to selloff as a Trump electoral victory appears inevitable.


Mexican Peso Hits Record Low

Hot on the heels of the projected Trump victory, the Mexican Peso hit a brand new record low against the US dollar overnight.  Although the currency pair has since pulled back from earlier highs, the movement has raised speculation that the Mexican Central Bank will move quickly to raise rates in an effort to prevent a deeper devaluation of the Peso.  However, as one of the most popular hedges against a drastic shift in government policy relating to trade and immigration, even the possibility of a 0.75-1.50% hike may not be enough to stem the drop in the Peso.  Even though Trump may not be able to implement the proposed protectionist policies he has advocated for throughout the campaign, the risk was enough to push USDMXN as high as 20.7714 before pulling back below 20.0000.


China Inflation Rebound Continues

Following the disappointing trade figures reported on Tuesday, China received some positive news during the Asian session on Wednesday following reports of improved inflation on both the producer and consumer levels.  On an annualized basis, consumer prices climbed 2.10%, marking the fastest pace of growth in 6-months.  After multiple years of producer price deflation, the weaker Yuan is having a demonstrable impact on import prices as evidenced by the rise in producer prices.  According to the National Bureau of Statistics of China, producer prices rose by the fastest pace since 2011, printing at 1.20% year over year as accommodative monetary and fiscal policies help the manufacturing and industrial sectors stay afloat.  However, on a monthly basis, consumer prices disappointed analyst estimates, retreating -0.10% during October.  After hitting a new record overnight, the USDCNY pair has corrected modestly, trending back below 6.8000.


UK Manufacturing improves

Despite concerns about the outlook for the UK economy following the High Court Decision, UK data continues to show certain sectors making positive progress, especially in the manufacturing sector.  According to the latest data released on Tuesday, manufacturing production rose 0.60% during the month of September with the annualized figure printing at 0.20%.  Although the figure year over year slipped from 0.50% reported a month earlier, the data still managed to beat an estimated contraction during the same period.  Furthermore, the monthly figure showed the fastest pace of expansion since April, giving credence to the idea that the economy continues to strengthen despite looming risks.  One area the risks are manifesting is in industrial production which contracted during September.  Since rallying overnight on election data, the GBPUSD pair has since retracted back below 1.2500, giving up almost all the election gains.


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