Dollar, global stocks, Mexican peso fight back as Trump shock fades

[November 09, 2016]  By Marc Jones

LONDON (Reuters) - The U.S. dollar, Mexican peso and world stocks fell on Wednesday as Donald Trump swept to victory in the U.S. presidential election, but fears of a Brexit-style shock that wiped trillions off global markets has failed to materialize so far.

European shares were down less than 1 percent and investors were returning to other markets that had been sent into a tailspin as it became clear the Trump was set for a dramatic victory over heavily-favored Democrat Hillary Clinton. [.EU]

Investors fear a Trump victory could cause global economic and trade turmoil and years of policy unpredictability, which among other things could discourage the Federal Reserve from raising interest rates in December as long expected.

"I love this country," Trump said in a victory speech in New York. "America will no longer settle for anything less than the best ... We have a great economic plan, we will double our growth and have the strongest economy in the world."

Vows by Trump that he would also forge strong relations with other big nations helped ease concerns of heavy tariffs being slapped on selling to the United States and starkly more aggressive geopolitical stance.

Safe-haven sovereign bonds, the Japanese yen and gold were all giving back ground fast having surged in Asian trading as the election results had come in and, as in the case of the Brexit vote in June, proved polls and betting markets woefully wrong.

Overnight in Asia as markets had toppled, Sean Callow, a forex strategist at Westpac, had said the market reaction had been "as though the four horsemen of the apocalypse just rode out of Trump Tower".

The mood in early European trade was far more measured.

"The initial reaction in markets was violent," said Saxo Bank head of FX strategy John Hardy. "But if you look at it across markets you are seeing a pretty decent reversal off the spike."

The mild 0.7 percent dip in European stocks was nowhere near as bad as the 4 percent plunge futures markets had indicated and the near 9 percent slump they initially suffered after the UK Brexit vote.

Mexico's peso also bounced, roughly 4 percent, off a record low it had hit overnight - though it was still down an eye-watering 8.5 percent as emerging markets bore the brunt of the impact. [EMRG/FRX]

Trump's threats to rip up a free trade agreement with Mexico and tax money sent home by migrants to pay for building a wall on the southern U.S. border have made the peso particularly reactive to events in the race for the White House.

TOP TRUMP

U.S. stock futures were pointing to a drop of around 2 percent for Wall Street later, less than half the 5 percent they had been suggesting in Asian trade. [.N]

As FX markets had reeled in Asia, South Korean authorities were thought to have intervened to steady their currency, and dealers wondered if central banks globally would step in to calm nerves.

Japan's top currency diplomat signaled Tokyo's readiness to intervene if necessary as the surging yen threatened to snuff out its fragile economic recovery.

The scale of the initial scare was clear in the Mexican peso, which plunged more than 13 percent against the dollar at one point in the biggest daily move in two decades.

"A lot of Trump's negative geopolitical rhetoric was concentrated around Mexico and trade with Mexico and tearing up the NAFTA agreement, so the peso just become this natural barometer of the election," said Deutsche Bank EM FX Strategist Gautam Kalani. "What happens now though is all up in the air."

The risk of a global trade war likewise knocked other currencies across Asia, with the Australian dollar leading the rout.
 

Traders at BGC Partners look at screens after Donald Trump won the U.S. Presidential election, in London, Britain, November 9, 2016. REUTERS/Toby Melville

The story had been very different against the safe-haven yen, with the U.S. dollar shedding as much as 3.3 percent to 101.85 yen and around 2 percent on the euro before the market changed direction.

That U-turn left both were well of their highs by 0545 ET, at 103.51 yen and $1.1108 for the euro respectively. [/FRX]

Graphic of live election results: http://tmsnrt.rs/2fxyZV0

Graphic of live market reaction: http://tmsnrt.rs/2fXfo0L

Live Coverage: http://live.reuters.com/event/election_2016

UNCERTAINTY

A wealthy real-estate developer and former reality TV host, Trump rode a wave of anger toward Washington insiders to win the White House race against Clinton, the Democratic candidate whose gold-plated establishment resume included stints as a first lady, U.S. senator and secretary of state.

Markets had favored Clinton as a status quo candidate who would be considered a safe pair of hands at home on the world stage. Analysts had no such certainty about Trump whose powers could be bolstered by the Republican's control of the Senate.

"With Brexit we had one bad day but this is different. This is what's scary about putting the most powerful position in the world in the hands of a man who many believe is temperamentally unstable," said Donald Selkin, chief market strategist at National Securities in New York.

"His tax cuts could open up a huge increase in the budget deficit and his trade sanctions could interrupt world trade. This could put us in a recession."

Asian stocks, which had closed before Trump's victory speech spoke of the need to strengthen the U.S. and keep global relations, showed the day's biggest dents.

MSCI's broadest index of Asia-Pacific stocks outside Japan ended down 2.3 percent and the Nikkei in Tokyo closing down 5.4 percent. It lost almost 9 percent after the UK Brexit vote.

Sovereign bonds whipsawed, with yields on 10-year U.S. Treasury notes initially flying down as much as 12 basis points to 1.75 percent - again the largest drop since the Brexit vote - only to climb back up to 1.90 percent in Europe.

In commodity markets, safe-haven gold saw big swings as well, climbing 3.5 percent to $1,320 an ounce as the dollar slid, but then backsliding to around $1,300.

There was a screeching U-turn from oil too. U.S. crude bounced over $2 to $45.12 a barrel, while Brent jumped back to $45.50 barrel having been as low as $44.40. [O/R]

Russian President Vladimir Putin said he was ready to fully restore ties with the United States following Trump's victory.

(Additional reporting by Wayne Cole in Sydney; Editing by Shri Navaratnam and Pravin Char)
 

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.