She commented, ‘Many parents today are wondering how to explain to their children how Donald Trump could break so many of the rules we try to teach them, and still get to the White House. The job of investors looks easy by comparison – they just have to work out what this extraordinary event is going to mean for world markets.
The economist continued, ‘If President Trump really does ‘put America first,’ many investors will be minded to do the same. it’s bad news for the rest of the world to have a man in the White House who has railed so long and so hard against open trade, and appears to care so little for the main pillars of the post-war international order.’
She added that before focusing on long-term considerations, investors should lern the lessons of the EU referendum vote.
Flanders commented, ‘Even political earthquakes with profound economic consequences do not change the world overnight, or in a predictable fashion. In the short term the best thing that most investors can do will be to sit tight and look for clues from Trump’s first few weeks.’
She added, ‘There will be three key tests for Donald Trump in this early “watch and learn” period. The first will be for him to build a strong cabinet, with respected figures in key posts of Treasury Secretary and Secretary of State. Second, he needs to continue to give voice to the calmer, more gracious version of himself that was on display in his election night acceptance speech.
No-one should expect him to repudiate everything he said in the campaign about open borders and trade deals such as the Trans Pacific Partnership Agreement. But the third test for the President-Elect will be to demonstrate that he does not plan to tear up the parts of the Washington establishment that are actually working quite well – notably, the US Federal Reserve.
From a market standpoint, probably the single most reassuring statement that Mr Trump could make over the next few weeks would be one saying that he supports the independence of the US central bank and he would delighted to see Janet Yellen stay as Chair when her current term ends in January 2018. On the campaign he said he would replace her. That’s one promise he should break.’
Flanders opined that the rhetoric we have heard from Trump to date implies, ‘ that fiscal policy will be looser under President Trump than it would have been under Hillary Clinton. A Republican Senate will not give him a blank cheque. But spending increases and tax cuts are easier to pass than the opposite.’
She continued, ‘the combination of looser fiscal policy and increased uncertainty over globalisation would be likely to mean a stronger dollar and potentially higher US inflation and higher interest rates. That is not a hugely helpful combination for the rest of the global economy, especially emerging markets. But that, too, is uncertain and could take time to materialise. In the meantime, my colleagues and I are not predicting a radically different path for the US economy following this result – or for US interest rates.’