Is the presidential honeymoon over?
It was one of Donald Trump’s most prominent pre-election pledges, so when the much-vaunted repeal of Obamacare failed to secure the support it needed in Congress, Wall Street signalled its disapproval via a massive share dump, bringing the stock market’s seemingly unstoppable rise to a screeching halt.
If the stellar performance of the S&P over the past few months demonstrated a level of confidence in the ability of the new president to deliver on his promises, this abrupt volte-face is a reflection of a more sombre mood. Tumbling US shares prefaced similar dips in Tokyo, Frankfurt, Paris and London as global markets wobbled over the prospect of the Trump administration’s ability to deliver on a raft of growth-boosting measures.
The winds of change
On the face of it, the ideological and political differences between the outgoing Obama administration and the incoming Trump regime could not be greater. Barely a single policy is likely to remain unaffected, with everything from public spending to international relations predicted to shift into sharp reverse under the auspices of a maverick who’s made his mark by defying convention throughout the presidential campaign.
In the last months of 2016, the financial markets reacted to Trump’s unexpected victory via a textbook surge in stocks and government yields as well as a significant upshift in the value of the dollar following predictions of increased growth and higher levels of inflation on the wave of announcements regarding deregulation, tax reforms and infrastructure spending.
An upturn for the economy?
After a period of sluggish performance, the US economy may be set for an unexpected upturn. The incoming Republican administration seems determined to throw all its resources into boosting the economy which, together with the much-touted trade restrictions shoring up the price of imports, is almost certain to fuel inflation above the average 2.2% of Obama’s second term.
While under Barack Obama, labour regulation and environmental legislation expanded greatly – witness the scope of Obamacare, for instance – its subsequent contraction under Trump may well encourage businesses to start investing again.
Oil prices soar as Opec deal nears agreement
In a landmark agreement thrashed out at a November meeting in Vienna, oil cartel Opec has agreed to cut supplies for the first time since the global financial crisis, causing prices to soar to the $50-a-barrel mark. The 13-member-strong cartel is responsible for pumping a third of the world’s oil, so the announcement that it would cut production by around 4%, equating to a reduction of 1.2m barrels a day, was big news on the markets.
The agreement represents an about-turn for Saudi Arabia, which has been committed to rising output over the last two years in a bid to torpedo the profits of US shale and other high-cost producers. The new cuts are designed to push prices upward from a $50 floor.
A memorable year
2016 has certainly been a year of surprises. After what seems like decades of ‘business as usual’ in Europe and the US, the steady march of globalisation and the apparently inexorable rise of liberalism, recent political and economic events have turned the old order upside down.
Donald Trump’s US election win coming hot on the heels of the UK’s vote for EU Brexit, coupled with a worrying slowdown in Chinese economic growth and historically low interest rates have not only created uncertainty on the global stage but are also creating significant risks for the global banking sector, according to leading ratings agency Standard & Poor.
When Britons voted narrowly to exit the European Union in a public referendum earlier this year, they may not have envisaged the ensuing shock to the country’s currency and financial reputation.
But now, with sterling languishing at its lowest value in 40 years and the UK stripped of its Triple-A credit rating, the country is also facing the possible loss of its reserve currency status, should it fail to secure continued access to the European single market.
US ratings agency Standard & Poor has admitted that the British government is risking significant damage to the economy’s growth, with potentially long-term implications for the country’s debt and credit profile. S&P fears that if the UK loses access to the single market, its businesses will suffer incalculable consequences for the foreseeable future.