“We have a great economic plan – we will double our growth and have the strongest economy anywhere in the world”, Donald Trump.

Almost a week has passed since the presidential election that came about quite unpredictably for many people. Market players reacted negatively, and stock market falls in many important markets on the day of election.

This was a natural reaction due to the unexpected result of the election and thus will likely be short-lived. What is far more important is that unlike Clinton, Trump did not comprehensively outline his domestic and foreign policies. As a result, there is considerable uncertainty about which policies he will pursue in office, and how aggressively he will do so.

China

In a congratulatory message sent to Donald Trump on last Wednesday, Chinese President Xi Jinping said he would like for the two countries to overcome their differences and work constructively to promote relations and avoid conflict and confrontation.

The words “conflict”, “confrontation” and “differences” are not often found in well-wishes. Then-President Hu Jintao did not use such language in China’s message to President Barack Obama upon his election victory eight years ago.

The unusual message reflects Xi’s positive stance toward the president-elect as China sees Trump’s victory as an opportunity to reinforce China’s presence in the world, especially Asia.

The monthly economic data from China’s National Bureau of Statistics showed industrial production grew at an annualised pace of 6.1 percent in October. That was in line with a month earlier, but below expectations.

Retail sales were surprisingly weak, growing at 10 percent over the year, but well down on the 10.7 percent growth recorded in September.

On the other hand, fixed asset investment (FAI) – which is a proxy for construction and infrastructure spending – held up better than expected, growing at 8.3 per cent in the year-to-date.

However, the headline figures for industrial production are probably a bit like GDP data – too stable to be entirely trusted.

Oil in a global economy

Oil has been under pressure since before the Organization of the Petroleum Exporting Countries (OPEC) said on Friday that its output rose to a record 33.64 million barrels per day (bpd) in October, up 240,000 bpd from the previous month.

OPEC plans to cut or freeze output, but investors are skeptical such a deal will be reached during the cartel’s November 30 meeting and are concerned that whatever agreement reached would not to be effective.

According to BMI Research, the most likely scenario at the OPEC meeting will be no deal, as the election victory of Republican President-elect Trump – a strong advocate of US energy independence – has altered its expectations.

Any agreement to cut output and support prices would now be seen by some OPEC members as a victory for US shale producers, BMI said

Precious metals

Volatility in gold and silver has been on full display for 24 hours as the US presidential election approached last week. Gold prices showed their biggest weekly decline in three years, including a more than $40 drop on Friday. The November price settled at $1,223.50 a troy ounce on Friday, its lowest close since before the Brexit vote. For the week, gold prices plunged more than 6%.

Silver was on track for a solid weekly gain before running into volatility on Friday. The metal plunged more than 7% on Friday to settle at its lowest level in over a month.

As Trump’s victory is being digested, a sense of “normalcy” returning to markets. Gold and silver have given back gains, and US stock markets have moved into positive territory.

Analysts, however, remain bullish on the long-term prospects for gold in a Trump administration, arguing that his inflationary and protectionist policies will pressure interest rates and weaken the US dollar, both of which are good for gold prices.

Currencies

US dollar rally that followed Trump’s unexpected victory has driven the greenback to its strongest weekly performance against the euro since February—and its best performance against the yen since July. The greenback has rallied sharply on the expectation that Trump’s plans for increasing fiscal stimulus would embolden the Federal Reserve to raise interest rates more quickly.

A rally in the US dollar has driven the yuan weaker. The yuan fell 0.05 percent to 6.8121 per dollar in Shanghai, approaching the 6.83 level at which China pegged its currency after the 2008 global financial crisis. If the depreciation accelerates in the coming weeks, there is a chance that China could take measures to stabilize the market.

Pound is up sharply against the euro so far this week as investors worry that the populist movement that inspired Brexit and catapulted Trump to the presidency will soon spread to the Continent.

Investment Recommendation from Jefferson Trust

Equities

  • Overweight in equities;
  • Emerging Market Equities valuations are still attractive. However, the asset class may face near term headwinds from US dollar strength and the moderation in Chinese growth which heavily influences the EM asset class.

Bonds

  • Underweight in bonds;
  • High yield spreads in both the US and Europe look reasonably attractive at current level vs what is on offer elsewhere. On the basis of expected total returns we prefer US over Europe.

Endnotes

1. Nikkei: “China sees opportunities in Trump victory”, 2016, <http://asia.nikkei.com/Politics-Economy/International-Relations/China-sees-opportunities-in-Trump-victory>;

2. ABC: “Chinese economic data disappoints, Japanese GDP beats expectations”, 2016,< http://www.abc.net.au /news/2016-11-14/chinese-economic-data-disappoints-japan-beats-expectations/8023856>;

3. Value Walk:” Here’s A Smarter Way To Buy Precious Metals In Volatile Times”, 2016, <http://www.valuewalk.com /2016/11/buy-precious-metals-volatile/>;

4. Economic Calendar: “Gold/Silver Ratio Highlights Disastrous Week for Precious Metals”, Sam Bourgi, 2016, < http://www.economiccalendar.com /2016/11/12/goldsilver-ratio-highlights-disastrous-week-for-precious-metals/>;

5. Barron’s: “Focus on funds: Precious Metals Get Trumped; Gold Hits 4-Week Low; Silver Down 6%”, 2016, <http://blogs.barrons.com/focusonfunds/2016/11/11/precious-metals-get-trumped-gold-hits-4-week-low-silver-down-6/>;

6. Market Watch: “Dollar scores best week against the euro since February”, Joseph Adinolfi, 2-16, <http://www. marketwatch.com/story/dollar-pulls-back-but-off-lows-as-us-rate-expectations-shift-higher-2016-11-11>;

7. Bloomberg: “China’s Yuan Set for Steepest Weekly Loss Since January Turmoil”, 2016, <http://www.bloomberg. com/news/articles/2016-11-11/china-s-yuan-set-for-steepest-weekly-loss-since-january-turmoil>;

8. Business Insider: “The US dollar is rallying”,Elena Holodny , 2016, <http://www.businessinsider.com/fx-currency-market-november-14-2016-2016-11>;

9. The Guardian: “US economy predicted to lead global growth”, Angela Monagham, 2016, <https://www.theguardian. com/business/2016/nov/14/moodys-predicts-us-lead-global-economic-growth-protectionism-trump>;

10. The Economist: “The economic consequences of Donald Trump”, 2016, <http://www.economist.com/blogs /freeexchange/2016/11/global-economy>;

11. Lexology: “US election global implications: top six issues”, 2016, <http://www.lexology.com/library/detail. aspx?g=7f5c09b4-d8d7-418f-8706-3786662e5e09>;

12. The Telegraph: “Q&A: What does Donald Trump’s Presidential victory mean for the economy?”, Tim Wallace, Szu Ping Chan, 2016, < http://www.telegraph.co.uk/business/2016/11/09/qa-what-does-donald-trumps-presidential-victory-mean-for-the-eco/ >.

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