Financial Markets Reaction to Trump's Victory
We look at how global markets have moved since the election result
Following Trump’s victory this week, financial markets are adjusting to a new world but it is not clear what that new world will look like. However the direction of travel does seem clear. We should expect change and with that comes higher levels of volatility in currencies, bond markets and sector rotation.
We have talked about the unsustainable level of bond yields on many occasions with medium term yields at well below level of expected inflation. Now it seems that policy (in the US at least) will be more reflationary. With US core inflation at 2.2% already and expectations rising, 5 year bond yields in the US at 1.55% still look too low. And that yield is the most generous across any of the major markets. Just 0.64% in the UK, 0.82% in Italy and still negative in most of core Europe and Switzerland.
The bond markets have already reacted sharply to the prospect of a shift towards fiscal policy easing, a trend which has been reinforced by Trump’s victory. For example, the UK 10 year Gilt yield has risen from 0.52% in August to 1.35% today. The 30 year US Treasury yield has risen from 2.1% to 2.95% since July which means a holder will have already lost 15% since the peak. Bonds are risky.
We have been cautious of duration risk for some time and we are now looking carefully at duration proxies in other asset classes. The outlook is far from clear but there is a good chance that this election result will mark an inflection point in many parts of our client portfolios.
By Jeff Keen
The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
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The information relating to ‘yield’ is for indicative purposes only. You should note that yields on investments may fall or rise dependent on the performance of the underlying investment and more specifically the performance of the financial markets. As such, no warranty can be given that the expressed yields will consistently attain such levels over any given period.
All data sourced from Bloomberg as at 11.11.16