World stock markets recovered from a sharp initial downturn to maverick Republican Donald Trump’s shock election win yesterday, quickly regaining their poise with surprising resilience.
Asia kicked off a “Trump slump”, with Tokyo diving on concerns over the untested policies of the billionaire businessman and reality TV star.
Europe followed suit, tipping about 2% lower at the open, but later rallied as nerves were calmed by Trump’s conciliatory victory speech and a firmer Wall Street.
At the end of the European day, London stood 1.0% higher, Frankfurt added 1.6% and Paris 1.5% - confounding forecasters.
“The much-feared election of Donald Trump didn’t cause the one-way negative reaction in markets many expected,” CMC Markets analyst Jasper Lawler said.
Andrew Kenningham, Senior Global Economist at Capital Economics said that Trump’s triumph had actually made little difference to the immediate outlook for the global economy,” but added that there were “bigger question marks” over longer-term prospects.
“As people have come to make considered assessments, the reaction seems more rational,” added David Jane at Miton’s. Trump’s expected economic policies, Jane said, will be “broadly inflationary”.
This means, he said, that they will be “supportive of equity markets and negative for bonds”.
This view was borne out yesterday by a swing in sovereign bond yields which rose as the day wore on, having initially dipped in flight-to-safety buying.
Even the benchmark German Treasury bond, a safe haven in times of uncertainty, gave up most of its early gains to end the day with a yield of 0.176%, against a day’s low of 0.092%.
US bond yields meanwhile rose on the prospect of a rising Federal budget deficit under Trump.
The US election outcome has drawn direct comparisons with Britain’s shock Brexit vote in June to leave the European Union.
“Of course, just as Britain has not yet Brexited, America has not officially entered the era of Trump,” said Spreadex analyst Connor Campbell.
Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, said there were “significant” worries over Trump’s policies.”Trump is a huge leap into the unknown,” she told AFP.
But, as CMC’s Lawler noted, “things are never black and white and Donald Trump can be a positive force, or at least a less negative force than Hillary Clinton, for some sectors of the stock market”.
Pharmaceutical stocks surged as Clinton’s campaign for cheaper drugs was off the table after her defeat, with Sanofi, Bayer and AstraZeneca all sharply higher.
Defence stocks also rose, on expectations of higher US military spending.
Auto shares, meanwhile, underperformed on fears of protectionist measures imposed by Trump.
Financials were mixed, but Spain’s second-biggest bank, BBVA, fell nearly 6%, punished by investors for its high exposure to the Mexican market.
The dollar recovered from early losses, and even showed gains against the euro in the European afternoon.
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