European populist parties see opportunity in Trumps victory

November 14, 2016

The unavoidable news of last week was the surprise election of Donald Trump. Early Wednesday morning markets reaction was sharply negative in Asia and futures market as the populist candidate tightened his grip over the electoral college. The FTSE 100 opened down; however, there was a quick recovery in equities. Treasury yields rose as the prospect of a significant fiscal stimulus put forward by a Trump administration sunk in. Increased government spending and tax cuts are likely to be inflationary as the labour market continues to tighten and aggregate demand increases. Significant uncertainty remains over the makeup and direction of a Trump government, although he has already toned down his rhetoric following the vote. The following day’s as Trump fills his government to be will give insight to its direction.

Trump

The US election result has for the time being taken the light off the potential negative impact of a Brexit. Furthermore, commentators have extrapolated the rise of popularism in the US and the UK onto the upcoming elections in Europe next year including France, Austria and regional elections. Populist, anti-EU parties have seen growing support in France and Germany, as well as other Eurozone countries, driven by the migration crisis as well as a similar anti-establishment sentiment to that, was present in the US election. While it is unlikely that there will be a significant change in the political direction in Europe, nothing can be ruled out given the events of this year.

 

Elsewhere, Japan saw an acceleration in GDP growth in the third quarter, growing at an annualised rate of 2.2%. This is significantly better than the expected 0.8%. Growth was once again driven by exports rather than a rise in consumption or investment. The 28 trillion yen (£207bn) stimulus package announced by Prime Minister Abe’s government in August appears not to have had an impact so far. This may increase expectations for the stimulus to be expanded if the domestic economy performance continues to disappoint. The recent guidance given by the Bank of Japan indicates that they are enacting yield targeting, aiming for a 0% yield on the ten-year government bond. This has the potential to be expanded further along the yield curve in the future.

 

Index Open Close Change % Change
FTSE 100 6693 6730 37 0.55%
S&P 500 2085 2164 79 3.79%
Dax 10259 10667 408 3.98%
Cac 40 4377 4489 112 2.56%
Nikkei 225 16905 17374 469 2.77%
UK 10 Year Gilt Yield 1.194 1.444 0.25 20.94%

 

UK inflation and retail sales figures are released on Tuesday and Thursday respectively. German GDP will also be released on Tuesday.