US politics: At the time of writing, Donald Trump is set to be the next US President. We see this as a possible regime shift in US policies but actual policy changes should be more modest due to likely resistance from Congress even within the Republican Party. However, Trump has room for manoeuvre as the Republican Party will also control Congress.
US macro: Short-term: the economy will not be hit by Trump uncertainties - growth is set to continue at around 2%. Medium-term/long-term: more uncertain but we think the negative effects from more protectionism and a tougher immigration policy will dominate possible positive effects from less regulation, lower taxes and infrastructure spending.
US rate policy: We still expect the Fed to hike in December, as markets are likely to stabilise ahead of the meeting. We expect the Fed to hike twice next year (in June and December) to offset the fiscal boost in 2018. We expect Trump to replace Fed chair Yellen in 2018 and appoint more hawkish governors.
FX implications: Higher EUR/USD short and medium term. EUR/USD set to rise to 1.13-1.14 in the coming days. Our 12M forecast remains 1.15. We expect EUR/SEK and EUR/NOK to head higher in a knee-jerk move and stay weak into year-end. We expect EM currencies, led by MXN, to weaken sharply on the Trump win.
FI implications: 10Y UST yields set to fall around 10bp and bund yields to fall in coming days. Medium term: higher UST yields.
Equities: We expect a knee-jerk 5-10% fall in global equity markets but the sell-off will be short-lived due to solid global growth. The US is set to outperform Europe and EM.
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