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Brain Food: A US Election Special

Today, the US votes to elect the next President. Polls have been known to be inaccurate, just ask par
November 8 · Issue #7 · View online
Today, the US votes to elect the next President. Polls have been known to be inaccurate, just ask participants in the recent Brexit referendum in the UK, but per the polls Hillary Clinton remains the narrow favourite over Donald Trump. The Democrats are expected to take the Senate with a small majority and the Republicans under Paul Ryan are expected to retain control of the House with a reduced majority. Outside of the US, the outcome of the election will be significant for global societies and economies, and given recent Brexit woes, especially impactful for the UK, Brussels and the EU27. President Clinton will be welcomed. President Trump less so.

Brain Food Special - A US Election Special
"Hillary Clinton and Donald Trump made their closing pitches on the last day of what has been a highly divisive campaign. By the end of today, more than 130m Americans are expected to have cast ballots. In addition to the president, voters will elect 34 of the 100 US Senators, all 435 members of the House of Representatives and 12 state governors. " Financial Times - 08.11.12
Global reactions to watch for…
If Clinton wins, her election would be seen broadly speaking as a continuation of the status quo with perhaps a more interventionist foreign policy stance. Her time as Secretary of State would suggest she takes the UK and US relationship seriously and it is one that she would hope to continue. Her choice for Secretary of State could be an indicator of this, experienced Democrats in foreign policy positions would most likely work in the UK’s favour.
If Trump wins, the UK’s positions would be significantly less certain though, not necessarily as negative an isolationist connotation might suggest. Trump has affiliated himself with the Brexit campaign and although it might be difficult to predict, there would be an opportunity for some positive alignments between the US and the UK, though possibly at the expense of the European Union. Trump’s policies on trade, a soft spot for Putin and his isolationist America-first policies are likely to be unfavourable to the UK initially. But, aggressively anti-immigration and anti-China policies could create opportunities in the long term.
If Clinton wins, there will be a huge sigh in Brussels. Clinton’s continuation of the status quo and remained support for the EU and NATO would likely work in its favour. Although uncertainty remains over the UK’s relationship with Europe, Clinton would likely place emphasis on remaining unified as she looks to put a stop to the stir caused by Trump and his Russian theatrics.
If Trump wins, Brussels may find itself in a tricky situation as its largest ally turns more isolationist or looks to build new bridges outside of the EU. Brexit was a blow but the Brexit / Trump combo might be the catalyst it fears most. Trump’s support for Brexit will create concerns that his election may encourage further weakening of EU cohesion and state solidarity. Regardless of this speculation, one would expect significant changes in trade policy and TTIP would more than likely collapse.
EU 27 Member States
If Clinton wins, continuation of the status quo would be greeted with open arms. Whilst states might compete harder to fill the void that will supposedly be created by the UK’s exit from Europe, from their point of view, mutually favourable policy would be expected to continue.
If Trump wins, the EU senior member states would have to work closely and quickly to react to a Trump Whitehouse. Russian clemencies would be heavily scrutinised and his lack of enthusiasm for NATO would be a major security concern as the Middle East may continue to destabilise and the refugee crisis worsen. This might give further aid to support for domestic populist parties and, in an extreme case, lead to further collapse of the European Union as we know it.   
The Global Markets.....
If Trump wins, the markets won’t be expecting it and a sharp depreciation of the dollar would be anticipated as an immediate effect (though, unlikely as much as the Mexican peso). Even if Clinton wins, depreciation could still be an issue in the medium term, even though it might be less dramatic in the short. Both she and Trump are protectionists and plan to boost government spending that will have a negative effect on the dollar. All-in-all, it might be a good time to starting buying gold!
US Government Bonds
A Clinton victory would cement the already high expectations that the Federal reserve will raise interest rates in December putting upward pressure on yields. The same cannot be said for predictions on a Trump win – some claim that either candidates pose a risk but that a Trump victory is the single biggest obstacle to the Fed tightening its policy next month. Trump’s previous attacks on Janet Yellen as the Treasury Chair have left uncertainty over her positioning as the Federal Republican nominee. The US has become accustomed to predictable policy making from the central bank - on a Trump victory, volatility into the bond market may loom. 
Sectors & Stocks
An expected winner regardless of the outcome of the election would be the defence sector. Trump wants to boost spending and encourage allies to buy it which, his negative rhetoric towards NATO will only encourage. Meanwhile Clinton’s campaign has been heavily funded by defence industry lobbyists. Similarly, infrastructure should also succeed under both candidates as they plan to spend more.
On the contrary, the same cannot be said for the healthcare and pharmaceuticals industries, particularly with Clinton’s consistent jibes at the drug prices in the US. This has already had notable effects on the Biotech sector and though there may be short term relief if Trump wins, how long can such an unregulated industry continue to self-govern?
As for energy, Trump is expected to make exploring for fossil fuels easier, while Clinton favours further tax incentives for alternative energies, which could be good for solar stocks in particular. The overall impact on the oil price is somewhat trickier to predict since finding new oil is not high on any oil companies’ agenda at present (given the low oil price and high cost of R&D and drilling) – if anything a Clinton victory could help prop up oil prices as hostility towards fossil fuels puts pressure on new energy suppliers.
Whoever wins, Wall Street’s benchmark equity index is projected to move 3.3% either way on the day, according to Credit Suisse. If this unfolded, it would be a record post-election move given that the S&P 500 has moved 2% on the day after an election twice in the last 58 years – the average is 1.1%. Upon a Clinton victory, a focus might be on trans-Atlantic equity with focus on the areas of government spending. Under Trump, equity might become a riskier asset class altogether since uncertainty would likely increase and remain prevalent as his policy unfolds and effects markets’ trajectories. 
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