Trump Win Makes Potential December Rate Hike Uncertain

Donald Trump will be the next U.S. president. This unexpected election outcome may make the Federal Reserve even more cautious than it has previously been, thereby putting a cloud of uncertainty over the potential December rate hike scenario.

Currencies And Hedging

Goldman views this event as a “potential negative growth shock to the US economy,” as markets digest the implications of the election outcome. Investors are flocking toward safe haven currencies like the Japanese yen and Swiss franc, while U.S. interest rates and the U.S. dollar may also head lower in the near term.

“It is early to draw firm conclusions, but policy uncertainty will likely stay elevated for some time as a result of this outcome. That uncertainty may translate into a more cautious Fed, where previously our US economists had expected a December hike with a large probability, and may also translate into increased tensions with key trading partners,” analyst Robin Brooks wrote in a note.

Forex And Commercial Mortgages

On the forex front, Brooks sees USD/JPY lower in the near term, in line with the rising rates sensitivity of this cross in recent years.

Further, Brooks recommends buying of commercial mortgages.

“Stay long commercial mortgages via the CMBX 9 BBB- index, opened on 27 May 2016 at 596bp, with a target of 500bp and a stop on a close of 675bp, currently trading at 519bp,” Brooks added.

It Was Going To Be A Crazy Wednesday Regardless

Regardless of which candidate had come out on top, the market has reacted strongly to recent elections. Since 1984, the S&P 500 has averaged a one-week return of -2.2 percent following Election Day.