Latest posts by Anastasia Moroz (see all)
- HSBC demands answers from Theresa May - 14 Nov 2016
- The impact of Trump victory, according to Deutsche Bank - 09 Nov 2016
- Members of Parliament enabled to block Brexit - 03 Nov 2016
Markets all over the world are likely to take drastic measures when the final result comes in, with the election estimated to be one of the two biggest global political events of 2016 alongside Brexit. According to the report by The Times, Barclays and HSBC will both continue trading desks open all night to give an instant response to news as it comes in.
Deutsche Bank’s team of equity analysts with Tom Pearce in charge has tried to evaluate the exact impact of a Trump or Clinton victory for Europe. The team has conducted analysis of the Euro Stoxx 600 evaluating the performance of 600 key stocks across 17 European countries, to try to assess how it may change depending on either outcome.
Their discovery suggests that, in bare outlines, a Clinton victory is priced in by the markets to a great extent but would still provide escalation to stocks. Meanwhile, in case Trump wins the reaction from market would be strongly negative.
According to Deutsche Bank, not only the reaction would be negative in case Trump wins but his victory would also result in a medium-term depression of stocks due to his policies remaining unclear.
Here’s is what the Deutsche’s research states:
Trump intends to introduce numerous modifications including considerable alterations in taxation, immigration and trade – and explanation of his policies has been far from explicit. Consequently, we predict a Trump’s victory would likely result in a considerable rise in US policy uncertainty. We re-run our Stoxx 600 P/E model to include US policy uncertainty. The index of US policy uncertainty has reached its highest point amounting to 100, around the lows of the last 10 years.
The study indicates that every 10-point leap in the index results in a 1.5% derating for the Stoxx 600. The model states that the market is already priced for a 45pt increase in uncertainty following the recent sell-off. A drastic increase in uncertainty during the 2011 debt-ceiling dispute would signify a further 100pt rise in uncertainty relative to what is currently discounted.
However, taking into account that the 2011 episode was exacerbated by the Euro area crisis, we estimate the uncertainty impact of a Trump victory would not be nearly the half of that amount, showcasing some 5-10% downside.
4 of Deutsche Bank’s charts from their study revealed to clients on Friday the previous week, are presented down below:
On the other hand, here is what Deutsche Bank expects Clinton win would mean for European markets:
Taking into account that Clinton’s policies are much less drastic in comparison with Trump’s and have been communicated more explicitly, we predict the current uncertainty to be dismissed from markets in case of Clinton win. A partial reversal of the 45-point rise in uncertainty currently being priced in, according to our P/E model, should experience a 5% increase in the Stoxx 600.
Clinton’s fiscal stimulus proposals are considerably lower in comparison to Trump’s and she is also very likely to encounter political roadblocks in a Republican-controlled House of Representatives. The ramifications of that would be large-scale fiscal stimulus being even less likely to happen.