After a long night and post a result that shocked the world and the financial markets , where the complete unexpected ‘black swan’ event took place, and post the dust settling somewhat. We thought we would share with our dear subscribers our views and how we see this would translate into the markets that we operate in.
Over the last 24 hours the world has witnessed a blue-collar movement that wanted change in America even at the cost of handing over the nuclear codes to a person that can’t even handle a twitter account.
Change is what America wants at any cost
President Elect Trump has promised that he will provide the American population the change they wanted by unwinding and reversing most of what the Obama Administration worked on over the last eight years. Those include:
- Climate Change agreements
- Commercial Agreements with Asia and particularly China
- Sanctions on Russia
- Pulling American troops out of the Middle East
- The Iran Nuclear deal
On those last four points, and as they have an impact on the markets that we operate in, it is important to delve deeper into what could happen the moment President Elect Trump steps into the Oval Office come this January.
U.S, Russia & the Middle East
We see the Trump administration reaching out to President Vladimir Putin and reaching an agreement regarding the Russian annexed Crimea, as well as Ukraine. This will cause issues with NATO allies – that Trump voiced his views about and wants to renegotiate anyway – but we see the Trump administration’s priority is to wipe out ISIS in Iraq and Syria to give the Americans the sense of security that they want, and deals with fears around a flood of immigrants. Trump would need a hand shake with Putin to complete this task effectively, specifically in Syria. Russia in return would get some of the sanctions lifted which would benefit the ruble and the entire country.
As a result, we see President Elect Trump authorising a significant increase of American troops on the ground in the Middle East to get the job done quickly. We see a deal reached with the Syrian President Bashar Al Assad, and potentially dividing the country three ways, a Kurdish province, a Sunni and an Shia/Alawite one. If the above happened, a sense of calmness to be restored in the Middle East as ISIS no longer poses a threat to the US, Europe and the Middle East. Should the job get done effectively, this would have a positive impact on the Middle East, and Europe as the flood of migrants would potentially be reduced. Investment appetite will improve anyway (if those ‘deals’ are done – as he sold himself as a ‘deal’ man) but would be magnified if the UN potentially agrees a ‘re-building Syria’ fund that consists of Billions of Dollars paid for predominately by Europe – which they should be happy funding if it deals with the migrants issue. Corporates and contractors in the MENA region would significantly benefit from signing plenty of contracts, and could reverse the economic cycle that has been declining for a while in the region. Therefore, our general view for the Middle East is that the results of the Election last night are positive – should President Trump implements what he said he was going to do if he was elected.
U.S & Iran
The big elephant in the room is what the Trump Administration would do regarding the Iran Nuclear deal, and how that would impact the price of oil. We have a view that Trump will want to reverse the deal as he voiced his views regarding the deal as a ‘terrible deal’ many times before and made his stance very clear. Moreover, Trump would have accepted many cheques written to him by the far-right, cash rich, pro-Israel Jewish lobbyists based in the United States to fund his election campaign. Those cheques wouldn’t have been written if promises were not made that should he get elected, he will go hard on Iran. This has been, over the course of the Obama administration, the main reason for the fallout and poor relationship between the Prime Minister of Israel Benjamin Netenyahu and Obama.
Obama’s ‘Pivot to Asia’ policies also led to a scarred relationship between the GCC countries – including the Kingdom of Saudi Arabia – and the United States. This, in our view, is about to get reversed by President Elect Trump. Which would be music to Saudi’s ears, and very pleasing to Israel. Therefore, this could have a short term positive impact on the price of oil as Iran will not be pumping out as many oil barrels per day as allowed to after the sanctions were lifted by the Obama Administration. In the long term, we see shale oil out of the US that would continue to flood the market which would keep the price of oil steady.
U.S, Asia & Europe
As for Asia and Europe, we think last night’s results would negatively impact Asia as clearly demonstrated by the Nikkei dropping 5%, and to a certain extend Europe – more so Asia than Europe. President Elect Trump has clearly stated that he would want to renegotiate commercial agreements with China and impose heavy taxes on US firms if they open up factories in China for cheaper labour. This would be very interesting to watch given that China is the biggest holder of US Treasury bills in the world (surely someone would have told him this?). Either way, we see continued volatility in Asian markets due to uncertainty. Which naturally would have an impact on investor sentiment, being led by the second largest Economy in the World – China. In our view, South East Asian countries (including Malaysia) will pay a heavy toll if China sees a hard landing and a slower economy as a result of Trump’s projected policies. We think the sense of calmer market volatility could be restored the moment the Trump administration realizes that what Mr. Trump was proposing before being elected is an impossible task. But expect jittery markets up until then.
As for Europe, a massive question mark is the results of the Dutch election in March 2017, and whether that will end up with another Brexit/US style far right result which could lead to the break-up of the European Union. Our view is, the Dutch voter will be watching across the Atlantic how President Elect Trump will be handling the ‘Unity’ message post a very divided United States – That will be Key here. President Elect Trump started off really well last night in his winning speech (as he was reading off the teleprompter) and signaled a strong message of ‘Unity’ which helped in calming the markets somewhat. Moreover, how he handles NATO, immigration, Merkel in Europe will play a key role in the decision making process of the Dutch voter.
So who wins?
In summary, Putin, Netenyahu, Assad and to a certain extent King Salman of Saudi Arabia would be the true winners here. Ones to watch is how Mr. Trump handles Asia and Europe – he will tread carefully there. Sympathy needs to go to Mexico, Cuba, Ukraine and Iran – because in his mind, he can.