Donald Trump overcame the polls to defeat Hillary Clinton in one of the most fiercely contested election battles in US history. Despite receiving only 47% of the popular vote versus Clinton’s 48%, the businessman and star of The Apprentice won some key battleground states such as Florida and Ohio to finish up with 306 electoral votes, comfortably ahead of the 232 won by his opponent. The Republican Party also retained control of the House and Senate.
Any fears that a victory for Trump would wreak havoc on financial markets are yet to be founded. There were some initial shocks as the result became apparent - the FTSE 100 index for example opened with a loss of just over 2% – but most major indices finished the day with a gain. The S&P 500 index, which measures US equities, closed the day with a rise of more than 1% over the previous day’s close. Furthermore, the index has risen almost every day since the election, and reached an all-time high towards the end of the month.
In the UK, Chancellor Philip Hammond delivered his first Autumn Statement. As a result of the uncertainties caused by the Brexit vote, the GDP growth estimates over the next couple of years were revised down. The forecast for 2017 is now 1.4%, down from the previous forecast of 2.2%. The Chancellor also revealed that the Government was no longer seeking to eliminate the budget deficit by 2019/20, as previously endeavoured. On a more positive note, Hammond unveiled a National Productivity Investment Fund of £23 billion which would be spent on improving innovation and infrastructure in the UK over the next five years.
Elsewhere in the UK, the High Court has ruled that Parliament must vote on whether the UK can begin the process of leaving the EU. Prime Minister Theresa May had previously declared that formal exit negotiations with the EU would begin by next March at the latest. She still intends to meet the deadline, but the ruling means the government cannot trigger Article 50 on its own.
November was a mixed month for developed equity markets. In the UK, the FTSE 100 index fell -2.01% while the FTSE 250 (ex IT) index and the FTSE Small Cap (ex IT) index picked up +0.42% and +0.30% respectively. In the US, the S&P 500 index gained +3.70% while in Europe the Eurostoxx 50 index crept up +0.05%. Japanese equities, measured by the Topix index, surged +5.49%.
Emerging market returns were mostly negative. The MSCI EM (Emerging Markets) index saw a decline of -2.17%. Chinese equities, represented by the MSCI China index, lost -1.18% and Latin American equities, measured by the MSCI EM Latin America GR index, fell -4.64%. The IISL Nifty index, which measures Indian equity returns, slumped -4.65%.
Global bond markets also struggled during the month. UK government bonds, measured by the FTSE Gilts All Stocks index, had another poor month as they fell -1.29%, and long dated (over 15 years to maturity) gilts shed -2.55%. In the corporate market, European corporate bonds, measured by the Markit iBoxx Euro Corporates index, were down -1.13% and sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, declined -1.34%. High yield returns were also negative, as the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index lost -0.93% and -0.03% respectively. Emerging Market sovereign debt, measured by the JP Morgan EMBI Global index, lapsed -4.17%.
Commodity returns were more varied. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, gathered +2.53%. The price of a crude oil contract rose +4.17%. The precious metals on the other hand saw negative returns, as the S&P GSCI Gold and Silver indices sank -8.01% and -7.94% respectively. The agricultural markets had a weak month, as corn and wheat dipped -3.93% and -7.15% respectively.
In the foreign exchange markets, the pound started to recover after several months of decline. Most major currencies depreciated against it last month, including the US dollar, the euro and the yen which saw losses of -2.28%, -5.44% and -9.88% respectively.
James Timpson BSc (Hons), IMC
(All the above returns are reflected on a local currency basis i.e. they do not factor in any relevant currency movements. Unless accompanied by PR (Price Return), they do include income).
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