Preliminary election outcome and impact (07.30 CET)
1 Who is the 45th president of the United States?
Answer: A majority of the electoral votes went to the 70-year-old Republican candidate Donald Trump, who will now serve as president from 2017 to 2021. This outcome surprised almost everyone.
2 Who will control the US Congress?
Answer: The Republicans retained their majorities in both the House of Representatives and the Senate. This outcome was expected, although there was a possibility that the Democrats would gain their own majority in the Senate. The new Congress will convene on January 3, 2017 and will be entitled to pass laws starting on that date.
3 What happens now in terms of political actions?
Answer: Trump will now begin putting together his administration, while Barack Obama becomes a “lame duck” president. In about a month, the Electoral College will officially declare Trump president and the results will be formally presented to the Senate on January 6. At noon EST on January 20, Trump will be sworn in as president.
4 How have financial markets reacted so far?
Answer: A Trump victory was clearly unexpected by financial markets, although its probability was not zero. As expected, markets are now reacting negatively: the dollar has lost value along with the Mexican peso, while global risk aversion has caused both fixed income and stock markets to react negatively.
The US political landscape
5 Will the election have a lasting domestic impact?
Answer: A historically “dirty” and sometimes hate-filled election campaign will have an enduring impact on the US domestic political landscape. Trump will begin his term of office with a large trust deficit and strongly polarised voters, who want to see actions aimed at the establishment and Washington. Major questions now surround the substantive political issues that disappeared during the election campaign. Trump has the potential to win more domestic political popularity, but probably at the expense of international relations. He nevertheless faces a very big challenge in now bridging the deep divides that the election campaign and his personality have created in the United States.
6 What will be the impact on the Republicans?
Answer: A divided Republican Party has the potential to come together, now that the Democrats have lost the White House after eight years. Trump’s patience with his critics is limited, which is expected to generate major short-term tensions within the Republican Party, but the fact that Trump also has Congress on his side will give him an unusually strong domestic political position.
Impact of the election on the US economy
7 Do we need to change our US growth forecast?
Answer: Although Trump’s economic policies are clearly characterised by a growth focus via such measures as large tax cuts, deregulation and infrastructure investments, they lack any holistic approach to public sector finances. In the short term, the economy may be hurt because of heightened uncertainty. Looking further ahead, economic developments will be determined by such factors as how trade relations are affected and how security policy events unfold.
Impact on global growth and security policies
8 Do we have to change our world growth forecast?
Answer: The world economy is showing fairly mediocre growth, with sizeable risks of reversals. Now that the US economy will suffer heightened uncertainty, at least in the short term, and now that the world may see increased trade barriers, it may be necessary to adjust global growth forecasts downward. However, the world needs more information on US trade policies before these risks can materialise.
9 How will relations with China and Mexico change?
Answer: US relations with China and Mexico will become more strained, given that tougher treatment of these countries has been one of the cornerstones of Trump’s election campaign. Trade policy is also a field in which the US president has a lot of power to act personally without congressional approval.
10 Will relations with Europe and Russia change?
Answer: With Trump as president, the global security policy situation will become more uncertain and difficult to assess. Relations with Russia have a good chance of improving, but this instead complicates relations with the European Union. The conflict in Ukraine also risks jeopardising US-EU relations, while Trump’s more isolationist attitude towards the US role in NATO risks creating a security policy vacuum. For the EU, which must already deal with its own internal divisions due to Brexit, the situation will become even more precarious. Trump’s election victory also risks creating momentum for populist parties and politicians in Europe as well, which will add to uncertainty ahead of the French, German, Dutch (and possibly Italian) national elections during 2017.
11 Will the outcome affect Brent crude oil prices?
Answer: The American oil and coal industries are big winners because of Trump’s victory. Looser regulation and better conditions for these sectors in the US are expected to benefit US oil production and thus have a dampening effect on oil prices. It will become harder for the OPEC oil cartel to push up oil prices by curtailing production.
Global financial market conclusions
12 Long- and short-term effects on the USD?
Answer: The US dollar weakened sharply against other major currencies during election night as the prospects of a Trump victory strengthened. The weakening of the dollar is a reaction to the political uncertainty surrounding the US due to the election outcome. Although USD depreciation is likely to persist as long as political uncertainty predominates, our assessment is that Trump’s victory should be able to benefit the dollar in the long term, mainly in relation to minor currencies. Trump’s economic policies, the threat to global trade and growing geopolitical uncertainty should create an environment that is favourable to the dollar against many currencies, including the euro and Swedish krona.
13 How will stock markets perform?
Answer: As expected, the initial effect on stock markets is negative. Stock markets in Asia have fallen in overnight trading and the decline is likely to continue when European and US stock markets open later today. In our assessment, Trump’s victory will also be negative for stock markets in the long term because of the threat to global trade, which risks hurting corporate profitability.
14 How will the Fed react to the election results?
Answer: Given sharply increased uncertainty, there is an imminent risk that the Federal Reserve will hold off on the key interest rate hike that the market had anticipated at the Fed’s policy meeting in December. Trump and many Republicans in Congress have been deeply critical of the Fed’s current low interest rate policy and of Fed Chair Janet Yellen. Although Yellen’s term of office runs until February 2018, there is a great risk that she will be replaced before her term ends. Trump is also a supporter of increased political control and less independence for the US central bank. At present, this means tighter monetary policy. Another factor affecting the Fed’s future policies is how much of Trump’s fiscal policies will become a reality. Looking ahead, a more expansionary fiscal policy should result in a need for the Fed to tighten monetary policy somewhat faster than we have anticipated.
15 What will happen to long-term bond yields?
Answer: The initial reaction is sharply falling long-term yields. Although different forces will be facing off against each other, bond yields should actually rise more in the long term due to a Trump victory than we had otherwise anticipated over the next couple of years. Tighter monetary policy, more expansionary fiscal policy and the risk of sharply increased US federal budget deficits are the main drivers behind higher bond yields in the long term.
Impact on Sweden
16 Will the election affect Swedish foreign policy?
Answer: Trump’s victory risks making the foreign policy situation more unpredictable. US relations with Russia will presumably improve, but there is a risk that this will instead increase tensions around the Baltic Sea. For Sweden, the security policy situation will become more complex, and a rapprochement to NATO is perhaps not the solution if Trump wants to decrease US involvement in NATO. It is thus more likely that Sweden will seek even stronger and closer defence cooperation with the EU.
17 Should we change our Swedish GDP forecast?
Answer: The risk that the US and the world will now move towards increased protectionism and less free trade represents a clear downside risk for Swedish industry. We must also add the general risk aversion resulting from a geopolitical situation that will become harder to assess. Although there are still many questions about how these changes may look and how they will affect different countries and sectors, sentiment about investments in – and prospects for – the exporting industry is likely to worsen. In the short term, however, we cannot rule out that these negative effects may be offset by even further krona depreciation.
18 Impact on interest rates and the Riksbank?
Answer: Because of increased uncertainty, in the short term the Riksbank’s monetary policy will become even more dependent on what the European Central Bank (ECB) does. Since the US election outcome raises the probability that the ECB will step up its stimulus measures, this changes the probability of Riksbank action in the same direction. Because the krona is so weak and the Fed will probably abstain from a December rate hike, pressure on the Riksbank will ease to some extent, but the probability of a new Swedish key rate cut or expanded QE programme at upcoming policy meetings has now risen.
19 How will the Swedish krona be affected?
Answer: The risk of increased protectionism in the world is a clearly negative factor for the krona, which some investors have viewed as a hedge against a Trump victory. Together with the outlook for an even more expansionary monetary policy by the Riksbank, there is a great risk that the krona will continue to weaken in the short term against the euro.