“Following the US election, global markets have reacted in predictable panic. Equity markets [and] the dollar sold off and gold rallied,” notes Kerim Derhalli, CEO of invstr.
Profit & Loss previously reported on the immediate aftermath of the surprise US election victory for Donald Trump, but the question facing markets now is: what next?
“Key will be now whether or not Trump will prove to be a populist or a pragmatic president,” says Valentijn Nieuwenhuijzen, chief strategist and head of multi-asset at NN Investment Partners. “Still, even a more pragmatic approach will only become visible after some time and the near-term outlook is therefore clouded with (geo-)political uncertainty.”
USD/MXN was one currency pair that was predictably impacted by the election result, hitting a high 20.77 – a fall for the peso of 14.3% as the result became clear. However, a Trump victory could lead to broader weakness amongst EM currencies, says Monica Defend, head of global asset allocation research at Pioneer Investments.
“The US election outcome may lead to increased interest rate volatility which may weigh on EM currencies, while a strong shift to protectionism may also hurt many export-orientated EM companies, not only in Mexico,” she observes.
The euro picked up a lot of the exodus from the dollar, with EUR/USD hitting a two-month high at 1.1300 overnight, although it has since fallen back into its recent range, meaning that GBP/EUR was trading slightly lower this morning.
Sterling strengthened against the dollar, but Lucy Lillicrap, FX risk management solutions at Afex, says that with Scotland’s First Minister, Nicola Sturgeon, proclaiming that Scotland will intervene in the legal appeal against the triggering of Article 50 without parliamentary approval, this could be a temporary gain.
“With all of this happening in the UK, the pound’s gains against the dollar are likely to be somewhat muted although additional GBP strength could be seen before the next significant downturn begins.
“Advances will be restricted by local resistance in the 1.2500 area and then more significantly, 1.2650 and 1.2825. Dips now have some support around 1.2350 as well and while above this level no direct path back to 1.2000 exists,” says Lillicrap.
David Lamb, head of dealing at Fexco Corporate Payments, says that “right now, many see swapping dollars for sterling as jumping from the frying pan into the fire”.
He observes that, unlike sterling after the surprise result of the Brexit vote, USD has held relatively steady, but attributed this to stoicism among dollar watchers, “who are so far gripped by paralysis rather than panic”.
Lamb adds: “The President Elect’s moderate victory speech has settled nerves to a degree, and there is at least consensus on one thing – America is taking a leap into the unknown and the potential for dollar volatility beckons.”
Meanwhile CLS says that it recorded increased levels of FX trading activity during the announcement of US election results, with particular spikes in activity between 02:00-03:00 GMT when the results for key swing states were announced (input volumes were seven times normal levels for that hour).
Input volumes were seven times normal levels for this time period and CLS says that this heightened activity continued following the confirmation of Republican candidate Donald Trump as president between 08:00–09:00 GMT, when input volumes were more than double normal levels for that hour.
Significant spikes were registered on CLS across currency pairs between 02:00 and 03:00 GMT, with input volumes 10 times normal levels for EUR/USD for that hour, followed by USD/JPY and GBP/USD, where input levels were nine times and five times more, respectively.
The largest increase in currency pair activity was USD/MXN, which traded 63 times the normal levels for that hour.
The increased trading volumes were driven by the surprise US election victory by Donald Trump, with Christopher Burke, CEO of Brickendon, noting that this is the second time in five months that the pollsters have been wide of the mark in their voting predictions.
Burke is critical of the current polling methods, arguing that pollsters need to adapt some of the tools currently used in financial services to improve the accuracy of their predictions.
“The tools for correct prediction exist and are the subject of much investment in financial services. Mining and combining unstructured data sets is the essence of Data Science. Why ask someone’s opinion directly when their Web presence will give a much more nuanced view of their political state of mind? Correct collation and analysis of the data would remove much of the guesswork from predictions,” he says.
Burke adds: “So why do we still rely on polls? The data sets exist and are largely in the public domain. Use of Knowledge Discovery in Databases (KDD) techniques and machine learning could give a much more accurate picture. In a race where the candidate with the smallest campaign investment won the day, pollsters and Democrats alike need to wake up to the use and interpretation of fifth estate data sets.
“We live in an age of misinformation and great data. Trump knows how to use it. Financial services know how to use it. Time for pollsters to up their game.”