Currency and Clinton, Trade and Trump: World First’s US Presidential Election Webinar

26th October

Jeremy CookChief Economist and Head of Currency Strategy

Your Presenter

• Clinton vs Trump• The Electoral College• The Downticket• Who will win?• Currency reactions • Terms of Trade• Implications for US and Global Economics• Conclusions• Questions

The US Election and You

Clinton vs Trump – How did we get here?

• Clinton views her ascent to the Presidency as somewhere between a divine right and a duty to the Democratic Party. Sanders battled hard in the Primary and may have made her tack to the Left to appeal to protest voters. Represents a continuation of the US under the Obama regime with a more involved Foreign Policy.

• Trump is the ultimate protest vote and has spent his short but meteoric political ‘career’ confounding and demolishing expectations. Policy is a moveable feast of populist, nationalist and quixotic ideas that have only a passing resemblance to typical Republican sensibilities.

• Election is between two extremely polarising, dislikeable characters and the campaigns will hopefully mark a nadir in political discourse.

Clinton vs Trump – The Polls

Data courtesy of 538

The Electoral College

The Electoral College

The Electoral College

Data courtesy of 538

Midnight 

• Georgia: 16 votesIndiana: 11 votesKentucky: 8 votesSouth Carolina: 9 votesVermont: 3 votesVirginia: 13 votes

0.30am 

• North Carolina: 15 votesOhio: 18 votesWest Virginia: 5 votes

Polls closing, exits and results1am 

• Alabama: 9 votesConnecticut: 7 votesDelaware: 3 votesDistrict of Columbia: 3 votesFlorida: 29 votesIllinois: 20 votesMaine: 4 votesMaryland: 10 votesMassachusetts: 11 votesMississippi: 6 votesMissouri: 10 votesNew Hampshire: 4 votesNew Jersey: 14 votesOklahoma: 7 votesPennsylvania: 20 votesRhode Island: 4 votesTennessee: 11 votes

1.30am

• Arkansas: 6 votes

2am 

• Colorado: 9 votesKansas: 6 votesLouisiana: 8 votesMichigan: 16 votesMinnesota: 10 votesNebraska: 5 votesNew Mexico: 5 votesNew York: 29 votesNorth Dakota: 3 votesSouth Dakota: 3 votesTexas: 38 votesWisconsin: 10 votesWyoming: 3 votes

3am

• Arizona: 11 votes Iowa: 6 votes Montana: 3 votes Nevada: 6 votes Utah: 6 votes

4am

• California: 55 votesHawaii: 4 votesIdaho: 4 votesOregon: 7 votesWashington: 12 votes

6am 

• Alaska: 3 votes

The Downticket

• All House of Representatives members (435) are up for election once again as well as 34 Senate seats and 12 Governors on November 8th.

• Currently the Republican Party holds majorities of 30 seats in the House and 4 in the Senate. A split in the Legislative and Executive branches can lead to policy gridlock, as we have seen in Obama’s 2nd term compared to the 1st, at least until the Midterms

• A Clinton win should allow for a Democratic Senate majority as the correlation has increased between Senate and Presidential voting.

• Democratic control of the House is a much taller order and we doubt it will take place.

Who will win?

Currency and wider market reaction to each candidate

• Clinton win still very much priced into markets with some bellwethers of Trump risk (MXN, Asian manufacturing exporters) riding lower on any increase in polling intention for Trump.

• On the basis of a Clinton win we anticipate a slight run lower for the USD, JPY and EUR as investors bid up EM risk on lower risk aversion sentiment. GBP would likely benefit against the USD but little elsewhere. Shares to rise globally in a brief and uninspiring relief rally.

• A Trump win will see a dramatic jump into perceived risk havens at the expense of risk, commodity, emerging and frontier currencies. RUB may outperform.

• Given the relative pricing of markets compared to Brexit, a 5-8% jump in the value of USD upon the announcement of a Trump is entirely possible.

• My trades list for a Trump win is: sell Mexico, CE3, Asian manufacturing exporters, domestic Korea, domestic Taiwan; buy gold miners, Russia, domestic China, energy.

Terms of trade under each candidate• Trump has been outspoken on many

things during the campaign but trade has been a long-held position of confrontation.

• We foresee a ‘trade war’ with China over tariffs, currency levels, jobs and investment and with Mexico over immigration and the wall.

• May allow for freer flow of funds back into the country from foreign domiciled US companies.

• Clinton has changed her mind on TPP and TTIP to now oppose having been a vocal proponent.

China

Canada

Mexico

Japan

Germany

South Korea

United Kingdom

FranceIndia

Italy

Netherlands

Brazil

Belgium

Switzerla

nd

Singapore

Ireland

Malaysia

Vietnam

Saudi Arabia

Thailand

0

100000

200000

300000

400000

500000

600000

700000

Total Trade with US ($M)

Data courtesy of Bloomberg

The US and Global economic outlook under each candidate

• Higher protectionist measures, thereby a cut in globalisation, typically will lead to an increase in inflation and a slowing of growth

• Both Clinton and Trump have advocated fiscal policy measures in an effort to boost growth but that is where the similarities end. Although fiscal plans, most notably Trump’s, have had some modifications in recent days, the general picture is one of more aggressive fiscal expansion under Trump, largely through tax cuts (both income and corporate), than under Clinton.

• Congressional picture for tax cuts (Trump) and education and healthcare spending (Clinton) are crucial

• Expansionary fiscal policy is likely to tighten the US output gap, increase inflationary pressure and invite tighter monetary policy (higher interest rates) although this is dependent on the relation with the Federal Reserve.

Conclusions• We foresee a Clinton win by a bit of a landslide in the Electoral College but a tougher deal in the

popular vote

• As seen with Brexit a ‘black swan’ event cannot be completely priced out of markets and remains a very real possibility with a fortnight of the campaign to go

• Markets have never appropriately priced Trump risk and a win for the Republican candidate would be a larger global market shock than that of Brexit

• We are moving to a global conversation of looser fiscal policy in Western economies and this will take place under either candidate

• A trade war is the last thing that the global economy needs right now

Questions

• These comments are the views and opinions of the author and should not be construed as advice. You should act using your own information and judgment.

• Whilst information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed.

• All opinions and estimates constitute the author’s own judgment as of the date of the briefing and are subject to change without notice.

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