US polls: Markets, trade wait with bated breath

dubai - While a Trump win could trigger larger market volatility, any upside will be limited in a Clinton victory

The results of the tightly-contested US presidential polls today are likely to have sudden implications for the financial markets within the region and globally.

While a Trump win could trigger larger market volatility as there could be a phase of uncertainty in his policy direction, any upside will be limited in a Clinton victory as the market has already priced in such a scenario, analysts said. In other words, Clinton's win could mean business as usual not only for the world's largest economy but also for the rest of the world, they said.

On the other hand, a possible Trump's presidency could see a more hawkish Fed and a stronger dollar, which will make the greenback-pegged dirham equally stronger against other currencies, making investment and holidays in the UAE more expensive for people from countries where currencies stay free of the dollar peg.

Analysts said emerging market currencies, including the Indian rupee, can be expected to weaken when the US dollar strengthens, which gives expatriate Indians a better exchange rate for their money remittances.

Monica Malik, chief economist at the Abu Dhabi Commercial Bank, said a Clinton victory would set the stage for a 25 bps rate hike by the Fed in December. "Notably, the tweaks to the November post-meeting statement showed the Fed is becoming more comfortable with a rate rise in the near term. There was also a nod to the recent pick-up in inflation," she said.

"The narrowing gap and the surprise Brexit vote have raised uncertainty, though markets found support after the FBI announced that no criminal charges were warranted against Clinton," said Malik.

An Emirates NBD market report noted that "the details of October's US jobs report were even more encouraging, and suggest to us that barring a surprise in Tuesday's election, the Fed is on track to raise rates again in December."

More pronounced will be the likely impact of the elections on international trade. Trump's protectionist approach and anti-trade proposals will have global ramifications. He plans to raise tariffs on Mexico and China by 35 per cent and 45 per cent respectively, and brand China as a currency manipulator. However, Clinton is more open to free trade so long as it does not hurt the interests of domestic business, manufacturing and US workers.

Experts said an equity market sell-off is a likely scenario should Trump win and also reaffirm his intention to move quickly on policy positions that disrupt long-standing trade relationships such as tariffs on China and Mexico and the revocation of the North American Free Trade Agreement.

The sell-off would be larger if Trump were to also create uncertainty about the future shape of the financial system, such as by calling for an immediate repeal of the Dodd-Frank legislation without offering a credible alternative, experts pointed out.

While Clinton's presidency is likely to follow almost similar policies as compared to the current administration, Trump promises radical changes. A Trump win will lead to significant tax cuts and calculations by independent agencies indicate that the US economy debt is likely to soar under Trump than Clinton over the next decade.

Experts believe Trump's plans would push consumption as income taxes come down. Investment demand could rise and this is expected to provide a growth push to the US economy, raise wages and employment. This is not the case with Clinton's plans as marginal tax rates on individuals and businesses rise.

- issacjohn@khaleejtimes.com