You do not need a PhD to interpret the United States (US) financial markets’ response to that country’s hotly contested 2024 election result. The moment Donald Trump was confirmed as the 47th president of the US, major stock market indices went on a tear, with the US dollar staging a dramatic 2% rally against a basket of major currencies, marking its most significant one-day surge since Brexit in 2016.
The Magnificent Seven just got more magnificent
Exuberant US investors pushed already expensive shares to loftier levels: The Dow Jones surged around 1300 points to an unprecedented 43499; the Nasdaq jumped 425 points to 18860; and the S&P 500 added 103 points, closing at 5887. Bitcoin continued its surge too, to over USD75000,00 per coin on dreams of lighter-touch US regulation under the new incumbent.
Nothing better illustrates the Trump effect than the huge ‘bump’ in the CNBC Magnificent Seven index around election day. So, while this business news brand and many of its presenters pushed Harris over Trump at every opportunity pre-election, the emotionless and unswayable technology giants in this ‘basket’ surged higher on the expectation of a broadly better domestic trading environment.
The level of partisanship exhibited by the mainstream media in US electioneering cannot be ignored and reflects in the headlines immediately following Trump’s election. Journalists and opinion writers on the staff at major news agencies expressed horror, shock and even mortification at what they deemed an unexpected result. Unexpected? Only through their pre-election lenses; in the months running up to the elections, most of these publications followed incomprehensible strategies that were more akin to cheerleading (pro Harris) and mud-raking (anti Trump) than news.
Your writer's favourite post-election snippet to date: “Donald Trump is an anti-democratic force; but he has just been elected democratically in our country.” Apologies, the source of this video comment was unclear, likely MSNBC or similar.
Will post-election reporting be similarly off-colour?
Can we rely on the same cohort of news and opinion leaders to offer clear predictions on what a second Trump term means for the global economy? Reuters.com, which one might define as ‘soft-touch mainstream’, hints at what may come.
Their reporting immediately following the election stumbles at the first hurdle, leading with the emotive phrase ‘recaptured the White House’ to describe the aforementioned democratic outcome. Their phrasing hints that the election was less about US citizens exercising their democratic voice and more about the forceful hoodwinking of ordinary voters by a malevolent Republican party.
In a piece headlined ‘Trump victory to reverberate through global economy’ they warn of tariffs weighing on trade and global growth, and pushing inflation higher. They also say that the US Federal Reserve will have to keep interest rates higher for longer, affecting emerging markets, especially Mexico and China. Reuters was not mincing words: “If Trump enacts just a fraction of his pledges – from higher trade tariffs to deregulation, more oil drilling and more demands on America’s NATO partners – the strain on government finances, inflation, economic growth and interest rates will be felt in every corner of the world.”
Back in South Africa, asset manager Ninety One offered a more considered view. Archie Hart, an emerging markets equity portfolio manager at the firm, said that initial emerging market reaction to Trump’s victory had been measured, with some weakness in China and Mexico due to concerns over potentially higher tariffs, but strength in markets which might benefit from a shift in supply chains, such as India and Malaysia.
He warned against drawing conclusions from short-term price fluctuations. “Over the longer term, emerging market performance will remain dependent on the complex interaction between economic growth, currencies, interest rates and geopolitics with much of this being anchored on [established] economic trends,” he said. Put differently, while policy and policy implementation may influence markets over the short- to medium-term, the laws of economics will prevail over time. Finaly, it remains difficult to guess at the economic impact of the Trump presidency on the economy absent clear policy.
Still reporting through skewed lenses
The reporting out of the United Kingdom was less accommodating. The BBC led with an article titled ‘Seven things Trump says he will do as president’ before dwelling on the more extreme promises that emerged from the months of electioneering.
In no particular order, they listed deporting undocumented migrants; moving the economy through taxes and tariffs; cutting climate regulations; ending the Ukraine war; not interfering with abortion regulations; pardoning some January 6 rioters; and sacking special counsel Jack Smith. The last two ‘promises’ included here to remind readers of the level of thug the BBC editorial team believes Trump to be.
This anti-Trump sentiment is on naked display in South Africa too. The Daily Maverick offered ‘views on the US election outcome’ published by seven of its contributors whose unhappiness was so tangible that it is best summarised by a line from one of the reader comments: “The piece was really enjoyable; [with much] woke wailing, rending of clothes and gnashing of teeth.” Your writer shared the text with Chat GPT and asked whether any of the seven had had good things to say about the 47th US President. The response: “None of these comments seem particularly positive; most express concern, criticism or caution about his presidency and its implications.”
The impact of a Trump presidency on the global path to net-zero featured strongly in most news coverage, with the consensus being that Trump would back out of various climate agreements. Nazmeera Moola, chief sustainability officer at Ninety One, noted: “The Republican victory is likely to see the US retreat from all global climate initiatives, much like we saw in the first Trump presidency.” Moola added that the victory opened the door for tax credits for electric vehicles to be rescinded, the cost of new renewable projects in the US to rise, and potentially, an expansion of oil and gas exploration on federal lands.
Wake up world: The fight against carbon has shifted
“We do think that countries like China and India will continue to focus on energy transition related investments as these investments have been driven by their positive financial benefits and impact on growth to date,” the sustainability officer said.
This observation seems a trifle off against recent global CO2 emissions stats. It turns out that new CO2 emissions across Asia (including China) have dwarfed the reductions achieved by the US and European Union (EU) over the years since the Paris Agreement. In other words, the fight for climate has already shifted from the West to dominant, high-population emerging markets.
Shifting focus back to South Africa, the election result has the potential to cause hiccups. Protectionist policies out of the US may threaten agreements like the African Growth and Opportunity Act (AGOA) which allows some South African goods duty-free access to US markets. The resurgence in the US dollar against the rand and other emerging market currencies will also pressure various inflation drivers, possibly influencing the South African Reserve Bank (SARB) interest rate-cutting approach. Finally, South Africa’s relationships with nations like China and Russia could come under increased scrutiny.
Reflation and ‘risk on’ present opportunities too
This piece concludes with some comments on the reflationary and ‘risk on’ approach hinted at by the post-election financial market movements. “The initial market reaction reveals the expected policy mix to comprise more expansionary US fiscal policy, reduced government regulation, a change in geopolitical stance and increasingly aggressive trade policy towards global manufacturing centres such as Europe and Asia,” said Thys Louw, an emerging market fixed income portfolio manager at Ninety One.
But this is not all bad news for SA. “Within emerging markets, despite a stronger dollar and higher treasury yields, we note that the reaction has not been as broadly negative as feared. For instance, high-yield credit markets have largely performed well given expectations of stronger risk markets, while sovereign debt markets such as Ukraine are rallying on the expectation of expedited peace negotiations under a Trump administration,” Louw said.
Besides, global investment decision-makers have already shifted focus to the next big thing including the upcoming Chinese National People’s Congress, the November US Federal Reserve meeting and the next 30-year US treasury auction.
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