Article / 26 April 2017 at 9:00 GMT

Trump, 100 days and the 10 post-election scenarios

Former managing editor, TradingFloor.com / Saxo Bank
Denmark

h

Hand on heart, you won't see me change my mind. Photo: Shutterstock

By Martin O'Rourke

Approximately six months ago, we wrote a piece looking at the potential impact of a Donald Trump presidency and ten possible scenarios that could arise if he emerged victorious. Confounding the polls, if not all of Saxo Bank's experts, Trump walked away with the main prize on November 8 stunning the world and setting the US on a path that few know where it will end.

April 29 marks the first 100 days of Trump's presidency and what a whirlwind 100 days it has been. Trump's healthcare reform package was beaten back before it even got to congress, his tax reform plans are seemingly on hold although he could yet pull a rabbit from the bag later today even if it is at a $2 trillion cost to the national debt, and his travel ban on citizens from seven mainly-Muslim countries to the US has set him squarely against the US judiciary. And that's just the domestic front.

In the international arena, there has been a stunning about-turn in strategy leading to intervention in Syria, US aircraft carriers setting anchor off the Korean peninsula (or not as the case may actually be) and oscillations in key relationships with foreign countries and international institutions that has had many scratching their heads.

While some of those 10 scenarios we highlighted had a far longer timeframe than 100 days, it is nevertheless a useful barometer of Trump's first 14 weeks to assess the impact of a Trump presidency and what we might be able to glean for the remainder of his term (just 3 years and nine months or so to go!).

On each scenario (with the exception of one) we gave a probability rating and republish in full.

1. Mexico's peso to plunge

Probability rating: The peso will plunge, but it is just a question of how far. We give it an 8/10 chance of hitting a new all-time high and going through 20.0.

It was a no-brainer of course that Mexico's peso was going to slide if Trump won and on January 19, the day before Trump's inauguration, USDMXN duly hit a close high of 21.955. The fortunes of the pair effectively became a proxy for the US election climbing from around 15.50 in the summer of 2015 when Trump announced his candidacy to 18.594 on the eve of the election. It closed November 9 at 19.844.

So far, so good as far as our probability rating is concerned. The more interesting development, however, has been the course of USDMXN since January 20. A strengthening peso would not have been a surprise given the fluctuating nature of market-moving events, but to see the peso at 18.95 Wednesday (0739 GMT) is perhaps not at all what the markets expected.

Washington's relations with Mexico are certainly at an all-time low with Mexican president Enrique Pena Nieto cancelling a meeting with Trump in January. But, as the dust begins to settle, the limitations of Trump's power domestically have started to show (we will treat the USDMXN as a domestic issue here given the Mexican wall furore and Mexican immigration into the US) and that has seen USDMXN back almost exactly at pre-November 8 levels. 

Trump on April 24 also signalled that any move on the Mexican Wall could be delayed for months as the government faces more pressing issues, namely the shutting down of the federal government if he isn't willing to play ball. Nevertheless all the companies that we speculated could gain from the wall's construction are sharply up from one year ago -- Cemex SAB (+100%), Granite Construction (+40%), Tetra tech (+50%), Caterpillar (+30%) -- with the exception of Fluor which has seen a slight year-on-year decline.

The limitations of Trump's power is a theme we will be returning to again and again here.

MXN angst was at its highest on January 19

n

Source: SaxoTraderGO


2. And it's a jump to the right

Probability rating: The lurch to the right is a certainty (9/10), but a weakened UN will limp on. We rate the latter's ultimate demise as a 2/10 chance.

Well, this one is by no means played out and a shift to the right on the international stage is as yet not a done deal. Lowest-common denominator nationalism was the charge we laid at Trump's door on October 25 and the dire relationship with neighbour Mexico alluded to already certainly fits the mould.

But, whereas the strongly nationalist platform is alive and kicking domestically, it has run into roadblocks on the international stage. China has not been the pushover that Trump believed it might be, with a little bit of bullying thrown into the mix. Instead, the president has abandoned his currency manipulator charge that dominated the campaign and is clearly seeking a more productive relationship with Chinese leader Xi Jinping after what looks like a cordial meeting between the two earlier this month.

That's not to say the president's arm-wrestling tactics have completely fallen by the wayside and the none-too-subtle pressure on Beijing to help settle the North Korean flare-up is still playing out, but if we were to take this as a football match, a score of Washington 0 Beijing 1 looks a reasonable assumption at this early stage.

But, speaking of North Korea and the attack on Syria on April 7, the Trump pledge of returning to an isolationist foreign policy already looks dead in the water as a far more muscular tone pervades the strategy. With Nato also back in the ample Trump bosom after some campaign wavering, the rightward lurch already fits entirely with a classic republican foreign policy agenda.

Strategic impatience rules the day. Take note Obama.

But outside of the US, the lurch to the right is by no means a certainty. Austria rejected far-right candidate Norbert Hofer in December and Geert de Wilders fell well short of the mark in the March 15 general election in The Netherlands. 

The final round of the French presidential election coming up on May 7 is also expected to deliver a victory for centrist Emmanuel Macron over the far right's Marine Le Pen. So far so good, but Le Pen's presence in the run off and the fallure of either mainstream conservative and socialist candidate to make it through demonstrates just how deep the divisions remain in Europe with implications for the whole European concept.

Le Pen and the anti-establishment communist Jean-Luc Melenchon together garnered 40% of the vote on April 23.

Meanwhile, the UK goes to the ballot for the third time in just over two years June 8 to effectively referendum the Brexit referendum. The obliteration of UKIP looks quite probable after prime minister Theresa May's stealthy encroachment on its territory. UKIP's legacy remains nevertheless with the shift to the right and 'splendid isolation' once again prevailing in Westminster.

As for the United Nations, there is no viable threat to the world police body as things stand, but Trump has already demonstrated that he belongs to the camp of the strategically impatient. Hold ups in the UN Security Council will be anathema to a president who likes quick results with an eye always on the mood among his constituency.

m



 Solid, but perhaps not utterly impregnable. Photo: Shutterstock

3. Yellen's days are numbered

Probability rating: 10/10 if Trump walks through The-White-House door.

The jury is out on this one but it is certainly no longer a 10/10 as we posited six months ago. Federal Reserve chair Janet Yellen was a regular recipient of Trump's tongue lashings through the campaign but that has softened since January 20. Trump this month even opened up to the prospect of extending her stay which expires in February 2018 stating "I like her, I respect her."

For now, low interest rates suit the president's agenda of creating more jobs and that chimes neatly with Yellen's graduated approach to raising rates. But, while it directly goes against a campaign pledge, there is 10 months to go before a decision has to be made. That's a long time in politics. It's an age in Trump's world.

4. Quitaly

Probability rating: 7/10 if Trump wins, but 3/10 if Clinton succeeds. It's not inextricably linked, but it does feed into the whole anti-status quo narrative.

Whether or not we accept that there has been some kick back against the anti-establishment narrative (and the backdrop is rather more complex than a zero-sum game scenario), Italy's decision to go against ex prime-minister Matteo Renzi in a referendum on constitutional reform in December, was a real kick-in-the-teeth for the EU.

The 'No' vote does not make Italy quitting the EU inevitable, but it undoubtedly sharpens tensions ahead of the next general election which can be held no later than May 23, 2018. Beppe Grillo's anti-EU Five Star Movement successfully hijacked the referendum debate to make it all about the euro and the European idea.

Grille's party is expected to make substantial gains when the next election is held and, with Italy's debt at 136% of total GDP, there is every chance the union could face a new existential threat on its southern border, especially if the anti-status quo platform is reinvigorated towards the end of 2017. With immigration a live issue and terrorist attacks in European cities becoming the norm, that is very possible.

Investors will keep a very close eye on the Italian/German 10-year yield spread, especially if it tips over the 200 points mark again.

Italian/German 10-year yield spreads remain elevated
l

 
















Source:Bloomberg


5. Media polarisation

Probability rating: It's already happened and is only likely to get worse whoever wins.

We live in a dangerous age where we seek only affirmation of views that we already hold. Social media has helped exacerbate that process as entrenched camps spread the word through various channels, as long as that word fits with their core beliefs.

Oddly enough, Trump may constantly dismiss the pillars of the media establishment like The New York Times and CNN, yet is known to be an avid watcher of CNN. Know thine enemy? 

Whatever his motivation, the inability to conduct debate in a reasoned and tolerant manner respecting the right of others to have different and possibly antithetical views is not conducive to democracy. The sooner we can return to normal discourse without hurling insults at one another, the better. Opinion is, after all, opinion, no? Branding differing views as 'fake news' has become a lazy insult clouding the discourse.

6. The end to rigged elections

Probability rating: 9/10 if Trump wins and 0/10 if he doesn't. The myth of the rigged election will never be allowed to die if the latter scenario is the outcome.

As suspected, this one never saw the light of day again. It served its purpose nevertheless and helped the president bolster his case against the establishment. Nigel Farage performed a similar trick last summer to help the Brexit vote over the line.

For now, the elections-rigged jibe can be best understood within the framework of vague references to America's deep state. The notion of something shadowy in the background pulling the strings is a pleasing one. At least for those unable to substantiate their case in any meaningful way.

7. An end to bipolar politics in the US

Probability rating: 9/10. This is more a question of when rather than if. It may yet take another term or two for this to become truly apparent.

The timeframe is the key here. Trump's approval ratings hover at around the 40% mark, the lowest for an incumbent during the first 100 days. Overall, dissatisfaction with the candidates on offer was evident throughout the campaign with Hillary Clinton almost as divisive as Trump.

The tit-for-tat nature of the relationship between president and Congress over recent terms has also handicapped the legislative process in the US and fuelled disillusion with the system. 

The emergence of a maverick like Trump and also the credible challenge offered to Clinton by Bernie Sanders is a step on from the Ross Perot challenge to the establishment in 1992 and there is good reason to believe that while that was a bit of a false dawn, a less bipolar breakdown of the US political spectrum is on the cards.

k
 Almost as divisive as Trump. Photo: Shutterstock

8. Improved relations with Russia

Probability rating: 9/10 if Trump wins and every possibility that within two years, hostility between Moscow and Washington might be at its worst at any time since 1985.

There's always one isn't there? We did carefully caveat this one though as the text in the probability rating makes clear, although not even we expected it to turn quite as quickly as this. It is fair to say nevertheless that relations with Moscow as things stand are every bit as bad as 1985 and perhaps worse after the bombing of Syria earlier this month to take out an airbase that launched a chemical attack against civilians at the behest of the Russian-backed regime of president Bashar-al-Assad.

Trump's about-turn on intervention could be seen as a genuine reaction to the horror of that particular attack or as a neat diversion to failures on the domestic front with the healtchare package in abeyance and tax reform plans also seemingly thwarted (allowing for what unfolds today). Likewise, the sabre-rattling off the North Korean peninsula fits with a gung-ho, WWE type of politicking that will appeal to a certain kind of Trump voter.

The cost has been the end of Washington's seemingly cosier relationship with Moscow and that has only been exacerbated by Trump's reaffirmation of the importance of Nato after questioning its role during the campaign. Even the pivot towards the European Union evident in Trump's abandonment of efforts to strike bipolar agreements has undermined the Moscow/Washington relationship.

A final shift in the chess pieces has also seen the US once again reassess its relationship with China and forge closer links with Beijing. The charges of currency manipulation have been dropped and there is every chance this will see Washington cooperate more closely with Beijing than Moscow in the future, a scenario few could have predicted at the end of 2016.

The summit between China's president Xi Jinping and Trump at the start of this month was a considerable success and that once again threatens to leave Russia isolated on the international stage with a Trump/Xi understanding over hotspots like North Korea beginning to form.

n
 He's aged, but Mikhail Gorbachev's trademark birthmark is instantly recognisable and so too is the state of Moscow/Washington relations three months into Trump's reign which show a marked similarity to the relationship Gorbachev inherited in March 1985. Photo: Shutterstock

9. Oil to rocket

Probability rating: 7/10 on both oil and gold. Bitcoin 3/10

US benchmark WTI was at $44.89/barrel on November 7, 2016. It has since peaked at $54.45/b on February 23 and was just below $50/b on April 26. While that is hardly a case for saying oil has rocketed, a risk premium has most definitely wormed its way into markets on the back of elevated geopolitical risk.

With a glut of supply still the prevailing characteristic of the market despite the Opec/Nopec deal on production cuts, WTI's approximate 12% rise since November 7 (as of April 26) indicates this is live.

Gold levels went into the election at the highly elevated level of $1,282/oz and in the aftermath of Trump's triumph, the so-called risk-on supportive Trump trade sent the precious metal down to around $1,130/oz. But the seeming suspension of his tax reform plans and a certain vagueness as to how Trump would set about putting together his $1 trillion stimulus package allied to the risk premium took gold to $1,290/oz last week. 

Gold has since slipped to below the $1,270/oz mark, but the bias remains upwards long term, given the unpredictability that has coursed through Trump's brief reign.

Bitcoin has perhaps been the biggest surprise having gone from $704 on November 7 to $1,282 on April 26, according to Coindesk.com.  We charted that rise already at the start of the year on the basis that investors might look to spread their portfolios as widely as possible. Why Bitcoin is so high is a bit of a head scratcher and it can fluctuate wildly, but the fact remains that the cryptocurrency is making a serious comeback and is now beyond those peaks of December 2013 that attracted so much attention.

10. May and Merkel to keep their distance

Enough said. Absolutely no need to elaborate on this one. 

We didn't actually produce a probability rating this one as we were being flippant for reasons we do not need to detail. In reality, Theresa May tripped over herself to become the first foreign leader to enter Trump's domain at the end of January, even holding the president's hand in the process.

May's haste was of course a product of the UK's horribly exposed position internationally which will ultimately see it outside the EU by the first quarter of 2019. Her efforts to at least begin the discussions on a trade deal between the US and the UK certainly got a sympathetic ear from Trump at the time, but his crash course in the realities of power has taught the president he will have to deal with surpranational organisations like the EU whether he likes it or not, and that has seen Britain slip in the pecking order from first position to who knows where.

May's desire for a summit has been in marked contrast to Angela Merkel who sat and watched from the sidelines as Trump cast doubt over the German chancellor's relevance, dismissing her as someone who had been a great leader. 

When the two did actually meet last month, a bizarre and ill-timed joke on the part of the president about wire tapping was met with the disdain from Germany's leader that it deserved. The contrast between Merkel and May has never looked sharper.

m
 We are not amused. Photo: Shutterstock

Martin O'Rourke is managing editor at Saxo Bank
26 April
fxtime fxtime
Perhaps the best that Trump has achieved (IMHO) is that countries such as Mexico are now looking for diversification of suppliers away from the USA. Suddenly Mexico have woken upto the fact that they are highly dependent on the USA but their south American neighbours can supply feedstock etc competitively and in sufficient volumes. The dollar strengthening awoke countries to fx cost and they all will be looking for more efficient purchasing even though the dollar has weakened recently the initial impetus to look away from the USA for supply of produce has already started. Perhaps this is why Trump has learnt to shut up and tweet less because he finally realises he hurts corporate america?
26 April
Martin O'Rourke Martin O'Rourke
Does Trump learn anything? To be fair, it looks like his first 100 days have been a crash course for him. the slapping of those tariffs on Canada's lumber though does suggest that he will revert to type when pushed, especially when it's against a weaker opponent and he needs a quick win. https://www.tradingfloor.com/posts/morning-markets-equities-all-in-on-the-trump-tax-plan-8624659
26 April
fxtime fxtime
It does as you say seem a quick and easy knee jerk move to appease home voters. The UK had years of sound bite politics with Blair and we still suffer it now sadly. Shallow politics sadly. Alas the electorate still take it at face value and clearly the American voters are just the same with Trump :-(
Relevant articles for you

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail