Yet again, the polls were wrong, but this time on the election of the president of the largest economy in the world. This will be the first time one party has controlled the Presidency and Congress since Obama’s first win in 2008 and before that George W Bush’s second term in 2004.
A less discussed, but likely as important consequence is that Trump will appoint the next justice on the Supreme Court, which could allow the Republicans to maintain a majority in the court. This could have important implications for immigration policy. With the Republicans likely controlling all three branches of the Federal government, we are entering a new era in US policy and global affairs. As for more immediate implications for markets:
What does this mean for USD?
The dollar has so far tumbled against the majors, most notably the yen. Part of this is because of the dynamics we saw around Brexit, but also because a Trump presidency will likely be positive for the dollar in the medium-term. This is because the likelihood of a fiscal boost in the face of a tightening Fed has increased.
What does this mean for emerging markets and risk markets?
The Mexican peso has collapsed, as one would expect given Trump's rhetoric towards the country. It has fallen over ten percent against the dollar. Meanwhile, commodity currencies, such as the Australian dollar, and other emerging currencies have fallen, but by much smaller magnitudes.
What is the implication of the sweep by Republicans on FX?
There are two lessons to learn from previous market reactions to US election results. The first is that, historically, US equity markets have tended to perform well in the face of political deadlock (split parties between Senate and house) and underperform with a "full set" (one part holding both the House and Senate with the Presidency). This morning we find ourselves with Trump the Republican candidate as the new President elect who will receive a "full set" with Republicans retaining both the House and the Senate. A scenario that typically has seen risk markets lag behind.
What happened in FX markets on Brexit day?
After the surprising outcome of the Brexit vote, USD/JPY depreciated by nearly 4% while GBP sharply depreciated by around 8%. However, once the results were certain, FX markets stabilised and did not reach new highs or lows for the rest of the day.