Glоbal Markets Are Shaken, Then Stabilize, After Trump Victоrу

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As the realization worked its way around the planet that Donald J. Trump would become the next president of the United States, global investors struggled to make sense of the financial and economic implications, putting markets on edge.

American stocks were relatively calm in early trading, a respite from the wild ride in Europe and Asia. But confusion showed no signs of abating, with investors awaiting the articulation of Mr. Trump’s agenda.

Global investors initially reacted as if the world had caught fire. They yanked their money from the marketplace in an unrestrained bout of selling reminiscent of the outbreak of war.

They sold stocks — first in Asia, and then in Europe. They sold oil and the Mexican peso, pushing it to a record low.

They even sold the American dollar, which nearly always functions as a refuge in times of chaos. Other traditional havens, like gold and the Japanese yen, rose in moves that had all the hallmarks of what traders usually describe as a flight to safety.

However, as Mr. Trump offered his victory speech in New York — eschewing the crude and divisive rhetoric that has brought him accusations of racism and misogyny in favor of congratulating his vanquished opponent, Hillary Clinton, and calling for unity — the markets began a steady climb back. By midday in London, stocks were roughly where they had begun, though they remained down sharply in Spain, and moderately down in France and Germany.

The dollar had largely recovered its losses. American stocks edged up slightly at the beginning of trading.

Even so, the initial stampede for the exits resonated as recognition that a vast range of policies framing global commerce — from trade to immigration to defense to climate change — were now subject to a potentially radical refashioning.

It is said frequently that what markets crave more than anything is certainty. The world suddenly seems in dire shortage of that.

The stunning June vote in Britain to abandon the European Union effectively redrew the regional map governing trade, risking a rupture within a marketplace encompassing 500 million relatively affluent people. But a Trump presidency presented the possibility that the whole atlas for international commerce had been torn to bits.

During the campaign, he vowed to renegotiate the North American Free Trade Agreement between Mexico, Canada and the United States. He repeatedly promised to slap punitive tariffs on imports from China, raising the prospect of a trade war between the world’s two largest economies.

Mr. Trump at one point threatened to renegotiate the terms of American debt, effectively raising the prospect of a sovereign default in the epicenter of the global financial system and a loss of confidence in the reliability of the American currency. If faith in the basic sanctity of the dollar cannot be taken as a given, then nearly every crevice of finance is subject to some additional layer of risk — from mortgages to corporate bonds to government debt.

More broadly, Mr. Trump vowed to radically alter a host of agreements made between the American government and significant actors on the global stage, from the Paris accord setting out targets to reduce the pollutants contributing to climate change, to the deal aimed at constraining Iran’s nuclear aspirations. He promised to escalate the battle against the Islamic State, intensifying bombing in Iraq and Syria. He vowed to build a wall along the Mexican border.

Taken as a whole, markets absorbed the looming Trump presidency as a signal that the knowns are now vastly outnumbered by the unknowns — a clear signal to pull their money to the sidelines.

“This is a negative shock for markets,” said Ricardo Reis, an economist at the London School of Economics. “For sure, this is a huge increase in uncertainty. And for the most part, what certainty is available seems bad. Like the Brexit vote, this raises the likelihood that trade deals will be repudiated and borders will be closed.”

In recent weeks, markets around the world had largely assumed the election would be won by Hillary Clinton, a known quantity with a record in public life going back more than a quarter-century.

But as returns emerged Tuesday evening, raising the possibility that two previously unimaginable words — “President Trump” — were on the verge of becoming official nomenclature, markets in Tokyo, Hong Kong, Australia and the rest of the region dropped precipitously, shedding as much as 6 percent of their value by early afternoon.

As trading commenced in Europe, stock markets were down more than 3 percent before recovering slightly. London shares opened down some 2 percent, before bouncing back.

Stock market futures initially indicated a sell-off once Wall Street awoke. Futures on the Dow Jones industrial average dropped more than 4 percent, and the broader Standard & Poor’s 500-stock index plunged about 5 percent, though both gained back some ground after Mr. Trump’s victory speech.

A trader in Frankfurt on Wednesday. Markets digested the looming Trump presidency as a signal that the knowns are now vastly outnumbered by the unknowns.

Thomas Lohnes/Getty Images

As currency markets fluctuated, they appeared to be functioning as barometers of national prospects in the wildly unpredictable new era unfolding.

The dollar’s initial weakening — it surrendered more than 1 percent on a broad index in Asian trading — was construed as a sign that protectionist policies championed by an incoming Trump administration risk damaging economic growth in the United States.

The Mexican peso fell in an apparent indication that markets assume Mr. Trump will follow through on his promises to make it harder for American companies to manufacture goods south of the border while selling finished goods in the United States. Some 80 percent of Mexico’s exports land in the United States.

The yen rallied against the dollar, as investors sought refuge in the currency. This intensified pressure on Japanese officials, who have often intervened in markets to lower the value of the yen in an effort to bolster exports. Officials from Japan’s Finance Ministry, the Bank of the Japan and the Financial Services Agency met in Tokyo on Wednesday afternoon, with one warning obliquely that the government could intervene in currency markets.

Ironically, Mr. Trump’s victory may have momentarily taken some of the pressure off one of his primary adversaries: the Chinese government.

Though Mr. Trump has in recent months repeatedly accused China of intervening to weaken the value of its currency in a bid to make its exports cheaper on world markets, the reverse has in fact been true: China’s central bank, the People’s Bank of China, has been devoting hundreds of billions of dollars to bolstering the value of the Chinese currency, the renminbi.

China has been contending with money leaving the country, a trend accelerated by assumptions that the United States Federal Reserve will soon lift interest rates. But with Mr. Trump destined for the White House, ratcheting up concerns about economic growth, many analysts now expect the Fed to reconsider. That gives the Chinese central bank less reason to fear a continued exodus of money.

But beyond such immediate concerns, the looming ascent of Mr. Trump to the most powerful office on earth has injected enormous variables into the calculations of those who control money. This appeared to be the message contained within the frenzied selling that accompanied word of his victory.

It remains to be seen whether Mr. Trump will do all he said during his campaign, said Nigel Green, founder and chief executive of deVere Group, a financial management firm, in a note to clients. “For now,” he wrote, “Trump winning is sending shock waves across the world.”


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