Global stock markets took Donald Trump’s shock victory in the US election in their stride, defying earlier predictions of a major slump in shares.
The FTSE 100 fell 147 points on Wednesday as trading got underway, but the scale of the decline was far less than the 230-point drop predicted. A measured acceptance speech from the president-elect as European markets opened soothed some of the immediate fears facing investors and the decline was arrested and then eradicated. By the close, the UK index had climbed 68.71 points, or 1%, to 6911.84.
Germany’s Dax added 1.56% to 10,646 after falling as low as 10,174 while France’s Cac closed up 1.49%. In Italy, which holds a key referendum on constitutional reform next month amid this period of popular revolt, the FTSE MIB was virtually unchanged, down 0.1%.
The European markets were helped by a positive, if mixed, performance on Wall Street, where the Dow Jones Industrial Average was around 150 points higher by the time London traders headed home. Earlier forecasts had suggested the Dow could fall by as much as 800 points. The S&P 500 rose 0.95% to a one-month high.
The only market to take a Trump tumble was Asia, where Japan’s Nikkei dropped 5.3% as Trump’s victory over Hillary Clinton emerged.
Connor Campbell, financial analyst at Spreadex, said: “Trump’s presidential promises during his victory speech have reassured investors. Simply it is too early to tell what exactly President Trump has in store, something that may make for a rocky rest of November, even if today has confounded expectations market-wise.”
David Kelly, chief global strategist at JPMorgan Asset Management, told investors on a conference call: “This is a pretty muddled playbook and that is why the market reaction is muted,” adding that “people shouldn’t overreact here”. Given that Trump had won the election he could now afford to sound less aggressive and be more pragmatic, Kelly said. “The hallmark of a Donald Trump presidency will be a certain amount of pragmatism.”
Kerim Derhalli, chief executive of investment group invstr , said: “The reality is that Trump’s victory could actually turn out to be a better option for the global economy than a Clinton win would have been.
“He has promised to cut corporate taxes, give US companies a tax holiday to repatriate the billions they have been stashing overseas and to invest in infrastructure. All of this on top of an economy that is already at 4.9% unemployment and showing sufficient increase in inflation to make a cautious Fed likely to hike rates in early December.”
Among the risers were pharmaceutical stocks as the threat of Hillary Clinton’s price controls disappeared, while precious metal miners gained ground as investors bought gold and silver as havens for their cash.
Companies benefitting from Trump’s plans to increase infrastructure spending were also in demand, including construction stocks and equipment makers such as Caterpillar.
But shares in Smith & Wesson and Sturm Ruger, the US’s two largest gun companies fell back as investors bet that the huge surge in gun sales driven by fears of reform had ended. Trump’s election has effectively put an end to the gun control legislation proposed by Democrats.
Elsewhere, US 10-year bonds – another port in a storm – initially moved higher, pushing yields to a one-month low of 1.71%. But yields rebounded sharply to more than 2% on optimism that Trump’s measures could boost US economic growth.
An initial fall in the dollar was also reversed, as investors bet that a Trump victory would not after all rule out a rate rise by the US Federal Reserve in December. Kathleen Brooks, research director at City Index, said: “A Trump presidency does not appear to be an obstacle for a rate hike from the Fed.
“This could be for two reasons: firstly, Trump’s softer approach in his victory speech may suggest that he will leave the Fed alone, and allow them to get on with their job, which includes hiking interest rates. Secondly, considering the win for Trump hasn’t been America’s Brexit, the Fed does not need to refrain from hiking interest rates to suppress market volatility and protect from stock market declines. Interestingly, expectations for more than one hike next year have also risen on Wednesday.”
But the Mexican peso, which fell 13% to a record low following Trump’s victory, was still down 8% by the time London trading closed. The currency had been hard hit due to Trump’s pledge to build a wall between the country’s border with the US and his comments on immigration.