Markets all over still buffeted by Trump

22 January 2017 - 02:00 By ANDRIES MAHLANGU
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JSE
JSE
Image: Siphiwe Sibeko/Reuters via The Conversation

Since the start of the year South African markets have been catching up to US stock markets - which have been on a tear since Donald Trump swept to victory in the presidential election in November.

On Friday, the day of his inauguration, Wall Street continued its rally and was hovering near record highs. The JSE All Share ended the day 0.70% higher, bringing its gain for the year to 3.71%.

Trump's promises to increase spending on infrastructure, cut corporate taxes and loosen the regulatory burden that followed the 2008 financial crisis have bolstered US banking stocks.

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"Trump does have the ability to send markets and currencies into a tailspin when he talks, often because of the outrageous things that he says. So there might be reason to be cautious. Keep in mind, though, that short-term volatility should generally be considered noise and for the most part noise should be ignored," said Petri Redelinghuys, founder of Herenya Capital Advisors.

The rand last year recorded its first annual gain against the dollar since 2010 and appreciated substantially against the pound and euro. Some of the currency moves flowed from the UK vote to leave the EU.

US election campaign rhetoric also boosted the value of the dollar before it eased over the past two weeks.

The expectation is that pro-growth policies will lead to faster growth in consumer inflation, thus triggering frequent increases in interest rates from the US Federal Reserve.

While the new policy direction in the US is still unclear, markets have interpreted the election outcome as being positive for US growth in the short run, according to Nedbank Corporate and Investment Bank analysts.

 

"A further concern for emerging markets is the potential change of trade policies that may impact on existing trade treaties, as well as unilateral increases in tariff protection in the US. The outlook for emerging markets has therefore become more uncertain. The lingering concerns about the sustainability of the recovery in the Chinese economy have been revived by the possibility of tariff increases on Chinese exports," they said.

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