Investors brace for volatile markets after Trump’s shock win

Investors prepared for more volatility on global financial markets in the months ahead as news of Donald Trump's surprise victory in the US presidential election jolted currencies, equities and oil prices, and prompted analysts to revisit their forecasts for future Federal Reserve policy.

The initial turbulence in financial markets in the early hours of Wednesday morning as the shock result emerged took the shape of a knee-jerk sell-off in equities and a corresponding rally in so-called safe haven assets such as gold.

Losses on Wall Street were later erased, however, as healthcare and bank shares rallied. Investors unwound their earlier bets that a Hillary Clinton win would bring closer regulatory scrutiny to drug and biotech stocks, while bank stocks rose on speculation that the Trump presidency could roll back regulation of financial services firms.

After an overnight plunge, the dollar surged the most since the day after the UK's vote to leave the European Union, as market participants were calmed by the tone of Mr Trump's victory speech, which fell short of the levels of megalomania exhibited during his campaign.

Integration

Mexico’s peso sank on prospects the integration with the United States will unravel, while Russian shares bucked a rout in emerging markets on speculation Mr Trump will mend ties with Moscow.

Oil prices also recovered to rise on Wednesday, having at first tumbled as much as 4 per cent earlier. US crude prices tumbled to near $43, but was trading at $45.68 later in the day.

Gold had one of its heaviest trading days ever, with 690,000 gold futures changing hands by 10.39am in New York, surpassing the volume on June 24th, the day after the Brexit result.

A bond-market gauge of inflation expectations climbed to the highest since July 2015 amid speculation the Republican will ramp up spending on infrastructure to boost the economy.

Mr Trump’s election was also deemed to make it more likely that the Federal Reserve will hold off raising interest rates for fear of hurting US growth at an uncertain time.

Fed

"A Clinton victory would have almost copper-fastened a rate hike but the Fed have been willing to hit the pause button in the face of uncertainty. So market conditions over the next few weeks may play a role here," said Eugene Kiernan, head of investment strategy at Appian Asset Management.

In September, Mr Trump accused Federal Reserve chair Janet Yellen of keeping interest rates too low for political reasons and suggested he would nominate someone else to lead the central bank once her term ends in 2018.

Bond yields are likely to move higher over time as a result of inflationary fiscal policies, said Ian Quigley, director of investment strategy at Investec.

The uncertain path of the relationship between the US and the rest of the world over the next four years “represents a clear risk”, he added.

Although polls had narrowed ahead of the election, Mrs Clinton had been the heavy betting favourite.

"It is therefore unsurprising that there has been a relatively large market reaction, although we note that this has been more muted than that following the UK's vote to leave the European Union," said Richard Larner, head of research at UK-based investment firm Brooks Macdonald.

– (Additional reporting: Bloomberg)