What does a Trump presidency mean for the markets

Donald Trump Fact file

Controversial billionaire businessman, celebrity, host of reality TV show The Apprentice and now President elect, Donald Trump was born on the 14th of June 1946 in New York City.
Outspoken, brash and often divisive, Trump won the Republican nomination in a crowded field with his provocative stance on immigration, best illustrated by his stand-out campaign promise to build a wall between the United States and Mexico.

With no record of public service, Trump then fought a contentious election campaign on the strength of his success as a businessman and reputation as a “deal maker.”

His stringent rhetoric, brash demeanour and promises to “make America Great Again,” were enough to convince the electorate that he has what it takes to fulfil the responsibilities of the most powerful office in the world. He must now deliver on his mandate for change.

With senior advisors in a Trump cabinet likely to include factious characters like nationalist media mogul Stephen K. Bannon, former New York City mayor Rudolph W. Giuliani and campaign leader Kellyanne Conway, the markets are holding their collective breath ahead of Trump’s inauguration on 20th January, 2017.

So just what does a Trump Presidency mean for the markets?

What we know so far: Economic policy

Tax

On taxation, Trump has promised to simplify the income tax system from the current seven brackets to just three, with significant tax cuts including a drop in top marginal tax rate from 39.6% to 33%.

He has also proposed a limitation on business tax to 15% for every business in an effort to make the United States a more attractive location for foreign direct investment. Estimates for the cost of Trump’s proposed tax plans range up to $10 trillion over a decade.

Trade

Trump has been vocal in his criticism of trade partners like Mexico and China, promising high tariffs on Mexican and Chinese goods as well as pledging to negotiate better trade agreements for America, with particular reference to NAFTA (North American Free Trade Agreement).

Trump’s intent to label China a currency manipulator as well as apply high tariffs and duties have seen him lambasted in sections of the media, and on Wall Street, for risking a potential trade war with China which could significantly impact the American economy.

Jobs

Trump’s rhetoric during his campaign has seen him paint a dark, sombre picture of the current state of the US job market, often at odds with actual employment figures, which have shown steady growth.

He has published surprisingly few concrete policy positions on how he aims to deliver an increase in jobs for the country though he has said stricter rules on moving jobs abroad, couple with creating “fair” new trade deals and further investment in infrastructure will deliver an “explosion of new jobs and wealth for the country”.

Potential impact on the markets

Forex

Trump has repeatedly stated in public his position that the US Federal Reserve and Fed Chair Janet Yellen have been politically-motivated in keeping interest rates low. He has essentially accused the Fed of attempting to create false appearances of a healthy economy and stock market to embellish the Obama Administration.

Trump has deemed the rising US equity markets as a “false stock market” that has been propped up by an overly accommodative Fed.

This stance against what he sees as politically-driven dovishness provides a hint that Trump may be keen on instituting a more hawkish Fed as President.

Should he do so, the possibility of higher interest rates going forward could lead to a stronger US dollar. In addition, Trump’s rhetoric on international trade issues marks his likely policy positions as heavily protectionist. At least initially, this stance could lead to a further boost for the US dollar, especially against emerging market currencies

Equity markets

Trump’s more business-friendly support of substantially lower corporate tax rates and financial de-regulation could help to provide a boost to investments and stock markets, at least in the initial phase of a Trump administration.

With that being said, however, the likely possibility of setbacks in international trade due to his staunch protectionist trade policies and an increasing deficit under Trump due to his sweeping tax cut proposals could eventually have a significantly negative effect on the US economy and equity markets.

With Trump’s team seemingly committed to repealing the Dodd-Frank Wall Street Reform and Consumer Protection Act, thereby decreasing banking regulation, big banks could surge.
Companies more dependent on trade on the other hand could suffer from trade wars with the Far East and especially China.

Energy

With environmental regulations likely to be lighter under Trump than they have been under Obama’s administration we could see a boost in the energy sector.

The President elect is on record as saying he believes global warming to be a hoax and this, coupled with his campaign promises to reinvigorate the oil and mining sectors, could see investment flow away from renewable energy.