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Commentary on financial market developments – November 2016

  • USA: Donald Trump wins presidential election
  • Austria: presidential election; Italy: key referendum

Donald Trump became the 45th President of the United States of America and managed to reach out to the US population dissatisfied with the current policies. The number of Hispanics who voted for the Republican candidate was surprising, despite his strong opposition to illegal immigration.

The outcome of the election was rather unexpected, with polls predicting a victory for Hillary Clinton. As the results of the national polls came in and it became increasingly clear that the Republican candidate would win, panic crept into the stock market and overseas indices weakened sharply. While Clinton was the epitome of the current establishment for the markets and could be expected to continue with current policies, Donald Trump is the great unknown. The turnaround in the markets came after D’s conciliatory victory speech. Trump, who backed away from the power rhetoric and called on Americans to unite. After his speech, stock indices headed upwards and mostly rose for the rest of November.

However, the rise was not across the board. Energy, arms and construction companies in particular benefited from Donald Trump’s victory, while the technology sector did not fare as well. Donald Trump is expected to encourage investment in infrastructure and energy, as well as leaning on a strong military. This was reflected in the strong growth of the Dow Jones index, while the technology NASDAQ, on the other hand, significantly underperformed.

If in November investors’ attention was focused on the United States, in December the Austrian presidential election and especially the Italian referendum will be the main focus. The results of both votes will reveal more about the reality of how other Europeans see their future. After Brexit, it would be a severe blow to the EU if voters in other countries join the centrifugal forces calling for greater independence or even leaving the European Union.

On the very first Sunday in December, two important elections will both take place. If Norbert Hofer wins in Austria and the Italians say “no” to Prime Minister Matteo Renzi’s reforms, stock markets are likely to face a rough Monday. Especially in Italy, where the banks there are in big trouble, the stock market could react very negatively. And in the highly interdependent economy of the eurozone, it is clear that the outcome of such an election would hit European markets as a whole hard.

A closer look at the Italian referendum:

The Italian economy is not in good shape. Italy is plagued by relatively high unemployment of 11.4% and a heavily indebted state and banks. The country needs bold reforms. The labour market is not very flexible and the whole political system is very rigid. The extreme number of MPs and the relatively high level of corruption for Europe are holding back Italy’s growth. The situation is made all the more complex by the fact that Italy is divided into a rich industrial north and a relatively backward south.

For more information on the Italian referendum, see HN: Italian referendum
On the topic of the Austrian presidential election, I recommend the election special on Aktuálně.cz: Austrian presidential election

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