9th Nov 2016 12:17
LONDON (Alliance News) - US stock futures were lower at midday in London, with equity indices in Europe in the red as well, but well off earlier lows, after a sensational recovery from the shocking news that Donald Trump was elected as the next US president.
"A surprisingly 'presidential' Trump victory speech – setting the bar incredibly low for what is expected from a recently elected candidate – seems to have reassured investors, the talk of infrastructure spending and a lack of usual vulgarity allowing for a relative aura of calm to encroach on the market," said SpreadEx analyst Connor Campbell.
The Dow Industrials in New York was pointed down 1.8%, the S&P 500 index down 1.7% and the Nasdaq 100, down 2.1%. Nevertheless, this represented a recovery for US stock index futures. Earlier, S&P 500 futures triggered limit-down curbs as the index was pointed toward a 5.0% drop.
Trump secured enough electoral college votes to surpass the 270 needed to win the race and confirmed in a speech in New York that rival Hillary Clinton conceded to him via telephone. In a conciliatory acceptance speech, Trump said it was time for the country to come together as "one united nation" and said the US must "bind the wounds of division".
The Democratic Party suffered a further double hit in the US elections as Republicans retained control in both houses of Congress. Republicans held onto a slim majority in the Senate, in a stinging blow to Democrats, who had been thought nearly certain of retaking control.
In London, the FTSE 100 of large-caps was down 0.7%, or 47.06 points, at 6,796.07. The blue-chip index touched a low of 6,696.33 after the open, but recovered almost immediately afterwards.
The FTSE 250 of mid-caps was 0.2% lower at 17,415.89. The AIM All-Share index was down 0.5% at 797.81.
The BATS UK 100 index was down 0.3% at 11,503.68, but the BATS 250 was 0.1% higher at 15,825.81. The BATS Small Companies was down 0.3% at 10,643.73.
"Of course, just as Britain hasn't yet Brexited, America hasn't officially entered the era of Trump, suggesting that much of the trading that greeted the open was a gut-reaction rather than informed positioning, especially considering how thin on the ground the Republican's actual policies are," said SpreadEx's Campbell.
Nevertheless, the analyst noted that there is still "plenty of room for volatility" as 2016 begins to wrap up, "let alone the months and (shudder) years of an actual Trump presidency".
UK Prime Minister Theresa May congratulated Trump after his "hard-fought campaign", vowing to work with him to as a "close partner on trade, security and defence."
Trump's election is not a game-changer for the UK, said Capital Economics, but it does add to the economic and political uncertainties. Capital Economics Chief Economist Jonathan Loynes said the UK will feel knock-on effects of any adverse impact on the US economy and financial markets, given the US is the UK's biggest export market outside the European Union.
"It clearly injects a degree of additional uncertainty over the external environment to go alongside the domestic instability caused by the EU referendum," Loynes said.
However, the consequences of the result may be smaller for the UK. Loynes highlighted that any appreciation in the pound versus the dollar will not hurt UK export competitiveness given the considerable fall in sterling following the Brexit vote.
Sterling was quoted at USD1.2444 at midday, compared to USD1.2399 on Tuesday. The pound was retreating after strong gains seen earlier in the day on dollar weakness.
The euro was standing at USD1.1058 at midday in London, hardly changed from USD1.1047 at the equities close on Tuesday. The single currency gave back most of its early gains, after hitting a USD1.1299 high earlier on Wednesday.
Deutsche Bank analyst Marco Stringa said the uncertainty associated with the policy outlook for the US economy after Trump's win could push the euro up in the short-term.
"The usual negative correlation of the euro with US equities is one reason for a EUR/USD rally on the back of a Trump victory near term. In the medium-run, the effect is ambiguous," noted the analyst.
Stock indices in mainland Europe were seeing heavier losses than their London peers, mainly due to the surge in the euro against the dollar, which wasn't matched by the pound. The CAC 40 index in Paris was down 1.5%, while the DAX 30 in Frankfurt was 1.4% lower.
Whilst the mood among investors calmed after the initial shock, it was still the traditional risk-off sectors which were performing the best.
Precious metals miners Fresnillo, up 8.1%, and Randgold Resources, up 7.5%, were amongst the best performers in the FTSE 100 as safe-haven asset gold got a boost from Trump's election. The metal was quoted at USD1,302.40 an ounce, coming off its earlier high of USD1,337.31 but still ahead of the USD1,274.74 it was quoted at the London stock market close on Tuesday.
Analysts have other picks among stocks other than gold miners. Liberum recommended buying online property portal Rightmove and automotive marketplace operator Auto Trader in the event of any weakness following Trump's win.
"We think following the inevitable sell-off in the market as investors go into 'risk-off mode' as the uncertainty of a Donald Trump presidency feeds through to the market, this is going to provide an opportunity to Buy two structurally growing UK growth stocks, Rightmove and Auto Trader," said Liberum analyst Ian Whittaker.
Whittaker said both companies are "dominant market leaders" in their respective markets, and expects their market position to compound overtime. Rightmove traded up 1.0% and Auto Trader was up 1.6%.
Ashtead Group, up 8.6%, CRH, up 6.9%, and Wolseley, up 2.8%, were benefiting from Trump's statement in his acceptance speech that he will ramp up infrastructure spending in the US. Ashtead, an equipment rental company, and building materials concerns CRH and Wolseley all have big exposure to the US construction market, so any uptick in infrastructure spending is likely to bring significant benefits for all three companies.
Meanwhile, Hikma Pharmaceuticals was 6.6% higher, while Shire was up 6.4%. Hikma, a generic drugmaker, and Irish pharmaceutical firm Shire were also benefiting after Trump's victory, as Democrat Hillary Clinton had said during her campaign that she would seek to combat high prescription drug prices in the US.
Grocer J Sainsbury, was the worst performer in the FTSE 100, down 5.4%. The company said it intends to cut further costs from the business as profit in the first half of its financial year rose, though like-for-like sales dipped.
By Daniel Ruiz; [email protected]
Copyright 2016 Alliance News Limited. All Rights Reserved.