As we have highlighted in the last few days, the US Dollar and US equities haven’t fared too badly in the post Trump victory world. Certainly, not what a lot of commentators had predicted. However, despite the relative calm of the headline markets, it certainly hasn’t been plain sailing for all asset classes. As we eluded to yesterday
(http://us2.campaignarchive2.com/?u=c80b12e255a6756346a30dc96&id=2326df565b), a subsequent euro sell off has been one of the features. In particular the sell off in EURGBP has picked up momentum in the past 24 hours and has already continued into this morning with a key support level already been taken out. The 100 Day Moving Average of .8665 (GBPEUR equivalent 1.1541) has been breached within the last hour. Certainly telling and puts some of the immediate post June 23rd referendum levels back on the radar which wouldn’t have been believable at the start of the week. The euro has now fallen 4.5% versus the pound this week (in fact since Wednesday) whereas the likes of EURUSD has only fallen 3% since the post-election high.
The next significant market move has been US Treasuries. More than $1 trillion has been wiped off the value of bonds around the world this week as Trump’s initial speech suggested policies that have seen boosting spending and quickening inflation. Approximately global bond market index slid by $450 billion yesterday, a fourth day of declines that pushed the week’s total above $1 trillion for only the second time in two decades. The benchmark U.S. 10-year note yield has jumped 37 basis points this week up to 2.15%, with the 30 year climbing 39 basis points on Thursday.
The other development and also in response to the above developments in the US treasury market has been a sell off in emerging markets. Trump’s pledge to restrict imports and add fiscal stimulus has seen an emerging market currencies fall with rumoured central bank intervention from India and Indonesia. On the equity from front the MSCI Emerging Markets Index dropped 2 percent. For example, the Jakarta Composite Index tumbled by the most in a year and the Philippine Stock Exchange Index had its biggest loss since January. Shares also declined in Russia, South Africa and Turkey, while benchmarks in Argentina, Mexico and Brazil plunged more than 3 percent. With a potential rate hike by the Fed still on the cards, expect a continuation of this trend with further pressures on emerging markets.