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Investors Have Much to Fear if 'Candidate' Trump Stays in Office

Investors Have Much to Fear if 'Candidate' Trump Stays in Office

(AP/Evan Vucci)

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Monday, 23 January 2017 07:16 AM Current | Bio | Archive

The fact that we are living in the new “abnormal” has set the tone for the start of the week.

President Donald Trump gave an inaugural address that has been interpreted as a retreat from American global leadership and that was confirmed on the White House website under "Trade Deals Working For All Americans." 

As said here before “Trump Remains Trump.”

Now, if it is candidate Trump who occupies the oval office, then investors may have to increase the seriousness with which they take some his other campaign pledges.

For the markets’ perception and so far, at least, this all comes back to trade, which was an area of strong rhetoric during the campaign, an area that was covered again in the inaugural address with some interesting interpretations of economic theory and critically an area where there are few checks to the power of the President.

Anyway, it was interesting to learn that President Donald Trump said on Sunday he has scheduled meetings with the leaders of Canada and Mexico to start renegotiating the North American Free Trade Agreement – NAFTA. The President said: “"We're going to start some negotiations having to do with NAFTA … I ran a campaign somewhat based on NAFTA. But we're going to start renegotiating on NAFTA, on immigration, on security at the border."

Meanwhile, the British Prime Minister Mrs. May is heading off on Friday to Washington to meet with President Trump with the talk all on a trade deal that could fit into the UK’s world after the EU.

Creating trade deals requires U.S. Congressional consent of course and the President’s power is largely unchecked only when it comes to sudden moves.

This will be an interesting test to see how “America first” evolves as a policy from the slogan that then in the 1916 Democrat Woodrow Wilson used during his presidential campaign.

By the way, in 1916 the slogan was a reference to the Wilson administration having kept the United States out of the war in Europe.

Investors could do well keeping in mind, for the pound sterling, this could potentially be a source of some support, which is of course not written in stone.

There is a sense that the English-speaking people may come together on trade. Australia and New-Zealand are also entering into trade related discussions with the UK.

However, we also should better not forget that the European Union still represents around 45 percent of UK exports.

Meanwhile in the Euro area, France has been displaying anti-establishment tendencies. The socialist party primaries saw a surprise result, although any new abnormal surprise result should really not be that surprising.

Hammond who is considered as the more extreme left candidate won the poll with ex-Prime Minister Valls, the presumed favorite coming in second. Both now have to go through a second round vote.

For investors, it could be interesting to know that Mr. Hammond supports the 32-hour workweek and a tax on industrial robots.

The socialist party trails in the national opinion polls, but with opinion polls being what they are it’s hard to know whether these polls are that relevant.

Markets are, for now at least, more likely to concentrate on the other establishment candidates Fillon of the republicans and the independent Macron as potential challengers to the Front National’s Marine Le Pen.

What is perhaps interesting to observe is that these makes of U.S. and European politics has left the dollar languishing and the euro strengthening.

This is logical. Foreign investors do not understand the domestic politics of a country as well as the domestic investors tend to. Foreign investors determine the price of the dollar. Domestic investors determine the price of the euro.

The whole phenomenon is easily explained by the continuous divergence between the current accounts of the U.S. that remains negative and that of the Euro area that remains in positive territory. 

Foreigners are more likely to overreact to political risk, so the dollar is more vulnerable to political uncertainty than is the euro.

So, for now at least, complete uncertainty about where the dollar could be heading, on the up- as well as the downside, over the near term seems to be the only game in town.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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If it is candidate Trump who occupies the Oval Office, then investors may have to increase the seriousness with which they take some his other campaign pledges.
donald turmp, investors, candidate, campaign
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2017-16-23
Monday, 23 January 2017 07:16 AM
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