Mourning in America?

Global capital markets have been roiled by
Trump’s stunning victory
, and the Republicans hold of both houses of
The initial reaction was dramatic and severe.  The
dollar and equities were crushed and
bonds rallied as the message from the electorate was clear. However, in
late Asia, the markets reversed and early moves were retraced.  

Trump’s policy prescriptions were mostly
by opposition to the status quo.
  Trumps advocates the
repeal of the Affordable Care Act (Obamacare) and Dodd-Frank, the omnibus
financial regulation.   He wants to clamp down on immigration. 
These three positions appear to enjoy widespread support among Republicans in
Congress.  Traditionally, the Republican Party has been more associated with free-trade, but Trump wants to re-open
trade agreements.      The next focus will be on Trump’s cabinet
picks.  Speculation begins immediately.  

The implications of US monetary policy are not immediately clear. 
A December rate hike was the most likely scenario, and it still is, provided
that the global capital markets are stable.  Presently that seems like the
most likely consideration to deter the Fed from hiking.   

The euro initially dipped below $1.10 in early and thin Asian
activity.  It rallied to $1.13 and then reversed.
  By early
European activity is was back near $1.11, and then slipped to the upper end of
yesterday’s ranges near $1.1050, where it found a bid.  The intraday
technicals suggest North American operators may push the euro

The greenback was bid to almost
JPY105.50 in early Asia, and as the
election results began to be clear, it was sold
to JPY101.20.
  It rebounded to nearly JPY103.80 in early Europe. 
Here too the intraday technicals warn of dollar weakness in North

The similar pattern is evident in sterling as well.  A rally as the results was becoming evident (~$1.2550)
followed by a sell-off that brought it back toward yesterday’s lows (~$1.2350)
by the time London was in full swing.  It
then a recovered (~$1.2430)  A move back toward $1.25 as today progresses
would not be surprising from a technical perspective.

Risk assets, including the dollar-bloc currencies,
have been sold.
  Asian equities were hit hard.  MSCI Asia-Pacific Index
fell 2.6% to reach its lowest level since July.  The Nikkei shed nearly
5.4%.  Chinese shares fared the best, losing only 0.5%.   Asian
markets that are open late, like Thailand, have recouped more of their

The Dow Jones Stoxx 600 is off a mild 0.5% in late-European morning
dealings after gapping lower at the opening.
  It closed the gap and is
moving sideways, perhaps waiting for fresh directional cues from the

The initial flight from risk assets saw the US 10-year yield fall from
around 1.85% to nearly 1.70%, but it subsequently rose to 1.96% in early-Europe
before consolidating near 1.90%.
  The curve itself is
steepening.  The two-year yield is off
four basis points to 0.82%, while the 10-year yield is up now up
five basis points at 1.90%.  The five-year yields are also lower.  Some observers are attributing the steepening
to the anticipated fiscal plans of the new Administration.    Asian bonds closed broadly higher, catching the risk-off phase.  European bonds are mostly lower, but German and Dutch
bonds are firmer.

The Brexit shock has been followed by the
US electoral surprise
Leaving aside
the demographics and the polls
, the common element is a retreat from the
path of at least the last several decades.   Is continental Europe
next?  The French center-right party, recently renamed Republicans, will
hold a primary on November 20, with the second round on November 27.  In
early December, Italy holds a referendum on constitutional changes (reducing
the role and size of the Senate).  Next year, there are Dutch, French and
German elections.  The odds of a UK election and even an Italian election
are not negligible.   


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