Trump wins: What does it mean for the markets?

An opinion: is America becoming an authoritarian state?

Trump wins: What does it mean for the markets? Photo: bbc.com

At first Donald Trump's unexpected and shock victory alarmed the markets, but then a moderate and restrained tone of his triumphant address to his supporters calmed them down a bit. So, by and large, no cataclysm happened. However, according to the economic observer of Realnoe Vremya Albert Bikbov, his victory can lead to the usurpation of the whole power machine of the United States by one clan. And this, in its turn, can lead to the implementation of any desires in politics and economics. Even the most bizarre and eccentric.

Hello, dear usurpers!

There is a misconception that after the election of Trump nothing will change — they say about famous American system of separation of powers, that the system of checks and balances will not afford violent fantasies of the new president to go wild. However, in order a political party felt free, it is necessary so that the House of Representatives, the Senate, and the president were all from the same party.

And now, for the first time since 1928, the Republicans have conquered all the heights: on November 9, the day of national federal elections, they won the majority in the Senate — the upper house of the Congress. According to The Washington Post, they took 51 seats out of 100, the Democrats — 47 seats. Earlier, the Republican Party retained control of the lower house of the Congress — the House of Representatives. In the house the representatives of the Republican Party received 224 seats, 218 seats are to be the majority.

The Trump's victory has formed a convenient construction for entire usurpation of power by one organized group. The majority in the Senate and in the House of Representatives and their president will afford the Republicans to throw this system of checks and balances in a trash can. Besides, most states and probably the Supreme Court now will be under Republican control.

The Republican Party retained control of the lower house of Congress — the House of Representatives. Photo: prousa.info

Having smelled a scent of the political monopolism, all opportunists and profiteers of power instantly rallied around Trump, with whom, due to his specific realtor world outlook, you can always come to terms. There are all signs of coming usurpation of power by one cohesive group. The situation is very favourable for it, and the temptation is quite great. So, the fundamental American democratic principles will have to go through challenging times. Independent media and a part of American society that opposed Trump are the only hope. But their forces will be fragmented, while Trump and his company have a chance to seize the whole state machine of the USA.

That is why we should regard the Trump manifestos seriously.

The Trump manifestos

So, what has he promised in terms of economy?

During the election campaign, Trump gave both positive and negative signals for business. For example, he promised that no business to pay more than 15% of income in taxes (now income tax in the United States is largest in the world — 40%). But, on the other hand, Trump said very negative for an investor things that he is going to force a company to return money from offshores and, what sounds even more ridiculous, to transfer production sites from China back to the United States.

The budgetary policy of the USA under Trump, according to his statements, consists in that he is to reduce taxes while reducing government spending. The key question is how the budget balance will react. If a deficit increases at low interest rates, it is likely that it counts in favor of a growth of the stock market (though unhealthy). If a cost reduction is excessive, it will give a deflationary effect that is likely be negative for the market.

These promises are not necessarily to be not implemented — how much unfulfilled manifestos we have already heard. But, again, if the group 'Trump and his friends' want to do something, it will be very difficult to stop them.

How have the markets reacted?

The victory in the American election of the Republican candidate Donald Trump forced the investors to seek a safe-haven asset, which led to a jump in price of gold on Wednesday by almost 5% to a six-week high, after which quotations lost part of growth and stabilized. Meanwhile, the dollar and European shares also trimmed losses, the traders associate it with Trump's modearte victory speech, contrasting sharply with his aggressive campaign rhetoric.

Addressing to his supporters after the announcement of the victory, Trump said that his team has an economic plan that will double the U.S. GDP growth and promised to involve millions of people in projects to restore infrastructure. Speaking about foreign policy, Trump said the United States will seek dialogue and partnership with other countries, not conflicts.

On the markets, we can expect an effect similar to Brexit, when at first there was volatility and a shift away from risks, but then the situation stabilized for several weeks.

But still, a tension on the markets will persist until the inauguration of Trump in January 2017. This increases a probability that the Fed will refrain from raising a key rate in December 2016.

I would like to note that at a recent online conference the head of the center for macroeconomic analysis of Alfa-Bank Natalia Orlova has rightly noted:

'Nevertheless, the Fed, apparently, have two scripts for acts. The Fed is going to rise the rate anyway, but the question is in a term. On the market they are discussing that if Clinton wins, then, of course, the Fed increases the rate, because Clinton's victory means that they should not expect economic shocks. Then the Fed will act according to the announced plan. If Trump wins, that fact itself is a shock for the markets, because it is not very clear what to expect from the economic policies of the U.S., and then the Fed will have to postpone the rate increase. The markets will be alarmed, and additional shock will be inappropriate.'

So, if there are no sudden moves before the inauguration on the part of Trump, the shocks on the markets will be minimal. On the Russian market, a turmoil is also not expected.

'We see some increase in volatility on the Russian market, but again — our market is reacting significantly less than many other markets… We have seen a similar situation with Brexit, so I think that in this case, like in the case of Brexit, there won't be any serious impact on our markets. Volatility is slowly subsiding, we see that those surges even of oil prices, which have been this morning, ended, and everything on the currency market have also returned to the level of yesterday. In general, the level of volatility is low,' said first deputy chairperson of the CBR Ksenia Yudaeva.

So, all that is left to do is to follow Trump and his team. To follow carefully.

By Albert Bikbov