SAUL ESLAKE

Economist

SAUL ESLAKE

‘Welcome to my website …
I’m an independent economist, speaker, company director
and Vice-Chancellor’s Fellow at the University of Tasmania’

Market reaction to Donald Trump’s apparent victory in US Presidential election


The Global Economy | 9th November 2016

Saul Eslake | The Conversation | 9th November 2016

An assessment published on The Conversation, 9th November 2016.

Donald Trump has emerged as the winner in the US Presidential election, but even before the result was clear the prospect came as a profound shock to financial markets.

As I wrote last month, financial markets had for the most part priced a victory by Hillary Clinton – just as they had priced a vote to remain (in the European Union) by British voters in the Brexit referendum of June 23. They continued to price that outcome right up to the opening of the polls, notwithstanding the narrowing in Hillary Clinton’s lead in opinion polls following the FBI’s intervention in the campaign on October 28.

As is often the case when the assumptions underpinning the financial markets’ pricing of uncertain events turns out to be wrong, the reaction has been both swift, and sharp – all the more so when there is a lot at stake.

Some will of course say that financial markets over-reacted to the Brexit vote and that the initial market reaction to the US election result should be seen in the same light. To be sure, the British economy hasn’t fallen into recession since the Brexit referendum, as some said it would.

But Brexit hasn’t actually happened yet – and it won’t, until April 2019 at the earliest. It may not happen at all depending on the outcome of court cases, Parliamentary votes and other eventualities.

By contrast, Donald Trump has won the Presidential election, he will become the 45th President of the United States on January 20. And with the Republicans likely to control both houses of Congress, at least for the next two years, as President he is likely to have a fairly free hand to do what he has said he will do.

Asian stockmarkets, which were open as the possibility of a Trump victory began to become clearer, fell sharply, led by the Japanese market which earlier in the day had fallen by almost 6%. The Australian market closed 2% lower. Futures markets are signalling that US markets will be down sharply when they open.

On the currency markets, the Mexican peso has fallen by nearly 12% today – reflecting not so much Trump’s threat to “build a wall” along the border between Mexico and the US, but rather his intention to slap a tariff of 35% on Mexico’s exports to the US. The Canadian dollar is down by about 1.5%.

Most Asian currencies are down by between 0.5% and 2.0%, with the exception of the Japanese yen, which has risen by more than 3%, almost certainly reflecting a flight to safety by Japanese investors. The Australian dollar has fallen by nearly 2% against the US dollar, despite the fact that the US dollar has itself fallen by between 1 and 3% against other major currencies.

On commodity markets, the gold price is up, and the oil price is down.

These reactions tell us not simply that the financial markets hadn’t expected this outcome. They also tell us that financial markets view the consequences of this outcome quite negatively.

And this is despite the fact that a number of Hillary Clinton’s policies – such as increased taxes on high-income earners – would have run counter to the personal inclinations of many participants in the US financial market.

It’s not difficult to understand why financial markets have taken this view.

Three reasons markets are spooked

First, and most importantly, Donald Trump has promised to launch a trade war against China, by declaring it a “currency manipulator”. He’s also threatened to impose tariffs of up to 45% on everything China exports to the United States – something he can do under existing legislation. This could bring on a recession in the US and in other countries besides.

Second, Trump’s fiscal policies will add significantly to the US budget deficit and US public debt, potentially leading to higher long-term US interest rates (which would in turn be negative for stock prices).

Third, Trump’s repeated personal attacks on US Federal Reserve Chair Janet Yellen and his support for the push from Rand Paul and others to “audit the Fed” threaten to undermine market confidence in the Federal Reserve.

President Trump will have the ability, almost immediately upon taking office, to reshape the Fed by filling the two vacancies on the Federal Reserve Board. Previously replacements for the board have been blocked by the Republican-controlled Senate in the outgoing Congress.

Finally, Trump’s stated policies towards longstanding US military alliances, and his view that more countries should have nuclear weapons, risks adding to geo-political uncertainty. This could worsen the already-fragile environment for business investment around the world.

This article has been updated since publication to reflect the US Presidential Election results.

ECONOMIC CHART PACK


Beginning in June 2020, Saul began publishing the Coronavirus Impact Chart Pack, a weekly publication tracking the course of Covid-19 and its impact on economies around the world, including Australia and New Zealand. Starting at just under 60 pages, by the second half of 2021 it had grown to more than 150 pages.

From the beginning of this year, 2022, the Chart Pack has been replaced with three separate publications:

Each of these chart packs will continue to trace the impact of the virus (for as long as that’s relevant), economic data, developments in monetary and fiscal policy, trends in financial markets, and (where relevant) political developments. They will be accessible to subscribers of the Premium Access package.

The World Economy chart pack will have sections covering the global economy, and the economies of major regions – including the United States, Europe, China, Japan, other East Asian countries, India, Canada, Australia and New Zealand (very briefly), Latin America and Central & Eastern Europe.


"I see a lot of chart packs in my line of work, but yours is about the best I have seen. It is amazingly comprehensive, covering far more of the world than any individual is entitled to cover, the charts are clear and easy to understand and they drill down into each topic in a very satisfying way. So well done, Saul."

Alan Kohler, ABC finance presenter, founder of Eureka Report


"A timely and comprehensive summary from one of Australia's best economists."

Adam Creighton, Economics Editor for The Australian


“I continue to find your thinking invaluable - this year to my ritual weekend reading of the economist I have happily added ‘Saul’s latest’.”

Rufus Black, former Managing Partner of McKinsey’s, and currently Vice-Chancellor of the University of Tasmania


“Your chart pack is amazing - and thanks for offering to add me to the mailing list, that would be great to be included. Everything you could want to know is there - and the way the data are organised and presented to tell the stories makes it so easy to follow.”

Prof Jeff Borland, Truby Williams Professor of Economics, The University of Melbourne, Website


“An excellent summary. Although I take a great interest in what’s happening with COVID-19 day by day In Australia and Internationally, I always find your weekly summary a very interesting review of the past week.”

retired former Chief Executive Officer of a District Hospital Service in New South Wales


THE WORLD ECONOMY THIS WEEK
5th September 2022



This chart pack, published on Monday morning (Eastern Australian time) each week, portrays developments in the global economy and in the economies of major nations and regions – the United States, Europe, China, Japan, other East Asian economies, India, Canada, Australia & New Zealand*, Latin America and Central & Eastern Europe – with particular emphasis on:

  • the impact of Covid-19,
  • economic growth,
  • labour markets,
  • international trade and payments,
  • inflation,
  • fiscal and monetary policy,
  • bond, currency and stock markets, and
  • where relevant, political developments

The pack typically runs to 110-120 pages and includes more than 570 individual charts as well as tables and text.

* for more detailed coverage of Australia and New Zealand please see The Australian Economy this Week and The New Zealand Economy this Month, respectively.

THE WORLD ECONOMY THIS WEEK 2022-09-05

THE AUSTRALIAN ECONOMY THIS WEEK
2nd September 2022



This chart pack, published on Friday evening (Eastern Australian time) each week, portrays developments in the Australian economy, with particular emphasis on:

  • the impact of Covid-19,
  • broad indicators of economic growth,
  • conditions in the business sector
  • the household sector, and consumer spending
  • housing finance and construction. and the residential property market
  • the labour market
  • commodity prices, trade and the balance of payments
  • inflation,
  • fiscal and monetary policy,
  • Australian financial markets

Closer to this year’s federal elections – which have to be held no later than 29th May – we will include some pages on political developments as well.

The pack typically runs to 80-90 pages and includes some 280 charts.

For coverage of the global economy, please see The World Economy this Week

THE AUSTRALIAN ECONOMY THIS WEEK 2022-09-02

EVENTS

Saul Eslake online presentation


“You are the best economic thinker in the country hands down”

Sheryle Bagwell, recently retired Senior Business Correspondent (and sometime Executive Producer),
ABC Radio National Breakfast


“Just want to congratulate you Saul on the unbelievably good set of slides you just presented, possibly the best I have ever seen. You have set the bar very high.”

Dr Joe Flood, Adjunct Fellow, RMIT University, Pandemicia


“Thank you very much for your excellent presentation for the Economic Society today. It is always a great pleasure to hear your eloquent, up-to-date and comprehensive talks.”

Andrew Trembath, economist, Victorian and Australian Government agencies


online events @ saul-eslake.com



Request Speaking Engagement

WHAT'S NEW

Most Recent Articles, Talks and Presentations


The World Economy this Week 2022-09-05

The World Economy This Week | 5th September 2022

The Australian Economy this Week 2022-09-02

The Australian Economy This Week | 2nd September 2022

Towards a Healthy Housing System and Why Social Housing isn’t Enough on its Own
Housing
17th August 2022


Papua New Guinea in the World Economy
The Global Economy
15th August 2022


Some Reflections on Inflation, Economic Growth and on Monetary and Fiscal Policy
Economic Policies, The Australian Economy
11th August 2022


The Risk of Recession
Economic Video, News, Recent Media Interview, The Australian Economy
10th August 2022


Managing the Budget
Australian Society and Politics, Economic Policies, Economic Video, The Australian Economy
9th August 2022


Treasurer’s Ministerial Statement on the Economy
Australian Society and Politics, Economic Policies, News, Recent Media Interview, The Australian Economy
31st July 2022


June quarter inflation figures
News, Recent Media Interview, The Australian Economy
28th July 2022


Consumer prices surge to 21-year high
Economic Policies, News, Recent Media Interview, The Australian Economy
27th July 2022


Critics call for World Trade Organization reform
Globalization, Recent Media Interview, The Global Economy
27th July 2022


The Australian Economy – What’s in Store?
The Australian Economy
20th July 2022


The risks of recessions in Europe, the US and Australia
Economic Policies, News, Recent Media Interview, The Australian Economy, The Global Economy
13th July 2022


RBA raised rate for the third time
Australian Society and Politics, Economic Policies, Housing, Recent Media Interview, The Australian Economy
6th July 2022


VIDEO

Recent Presentations


See more


TESTIMONIALS

What Others Say


“You are one of the best at what you do in the world”
Gail Fosler, Chief Economist, The Conference Board, New York, December 2002

“I have never known an economist to have such a knowledge of world economic facts and to be able to bring to bear so much information in answering a question without notice”
Charles Goode, Chairman, ANZ Bank, July 2009

“Saul Eslake is … a highly regarded independent economist with the highest degree of integrity"
John Durie, Columnist, The Australian, July 2009

“… one of the few people in this world who can have so many oranges up in the air at the same time but still manage to catch them"
Andrew Clark, journalist, Australian Financial Review, November 2008

Read more

LINKS

Useful Links