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Market panic greets Trump election

Mr Trump's election had one economist advising: ''sell stocks, buy gold and bonds and head for the hills.”

Mr Trump's election had one economist advising: ''sell stocks, buy gold and bonds and head for the hills.” Digital image

Markets across the world have moved into panic mode as Republican rebel Donald Trump snatched an unexpected election victory from the hands of Hillary Clinton. Australian shares lost $34 billion in value and losses were spread across the globe.

Share and currency investors started the day in a positive mind frame, thinking that the ‘business as usual’ candidate, Ms Clinton, would score an easy victory.

But as the polls moved towards Mr Trump, the mood changed dramatically. To get a view on what the financial world thought of the Trump rise, take a look at the following graphs.

Australian shares

Australian stocks took a bath

Australia’s All Ordinaries index took a bath across Wednesday

Australian share investors started the day with equanimity, pushing the local market indicator up 0.7 per cent after rises earlier in the week based on the view that Hillary Clinton would be President by Thursday morning.

But when that view became evidently mistaken, panic set in. The market tanked with the index falling 3.6 per cent by early afternoon, at one point wiping $46 billion off investors’ balance sheets.

Things improved a little later but investors still lost $34 billion.

“Markets are reacting as though the four horsemen of the apocalypse just rode out of Trump Tower,” said Sean Callow, a forex strategist at Westpac in Sydney.

“Or at least three of them – it might be four when the prospect of a clean sweep of Congress sinks in.”

The Australian dollar

The Aussie dollar tanked when Trump's stocks rose.

The Aussie dollar tanked when Trump’s stocks rose.

The Aussie dollar is one of the world’s favourite trading currencies. That means it gets clobbered when investors want cash to move into low risk assets. That happened on Wednesday.

A second driver was the fear that Trump policies might damage China, which buys lots and lots of Aussie commodities. China’s resource appetites got us out of the global financial crisis in 2008. Markets fear if China is hit it could push Australia into the funk it avoided last time.

US shares

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US share futures fell sharply.

US shares had also been stronger over election day. But when voter sentiment became evident, investors started to fret about Mr Trump’s likely effects on the US economy.

Futures on the Dow Jones Industrial Average and wider market indicators all went into free fall Dow futures recovered a little but were still 3.7 per cent lower than their high point before the count began in earnest.

Gold prices

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The gold price spiked.

Independent economist Stephen Koukoulas described the market response to the election result like this: “sell stocks, buy gold and bonds and head for the hills.”

A quick look at the gold chart shows that is a really good description of what happened. At midday Australian time gold was priced at $US1,268 an ounce.

The panic set in and it spiked to $US1,320 by 3.15pm (AEDT), rising 3.5 per cent in a few hours. When the markets are in free-fall, the ancient role wisdom that gold can survive hell and high water emerges front of mind.

That’s exactly what happened on Wednesday.

The US dollar index

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The greenback fell against a basket of currencies.

The US dollar is considered a safe investment when things look bad in international markets.

But with uncertainty about how what was a strengthening US economy will fare under president-elect Trump, the greenback is not looking so flash. So it fell 1.8 per cent against a basket of European currencies on Wednesday.

The prospect of delaying an expected rise in interest rates also makes the greenback look a little less attractive. “The Fed will postpone rate hikes for a few months until they see what will unfold,” Mr Koukoulas said.

With Mexico the target of much Trump policy animus, the country’s peso has been a negative proxy for his electoral chances. It plunged more than 12 per cent against the dollar when he emerged as the likely winner.

“There’s a lot of panic in the market, it is definitely an outcome it was not expecting,” said Juan Carlos Alderete, a strategist at Banorte-IXE.

The peso has become a touchstone for sentiment on the election as Trump’s trade policies are seen as damaging to its export-heavy economy.

US bond futures

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Bonds were a safe haven.

When shares are sold off, the smart money goes to government bonds. Returns mightn’t be much but at least you can be pretty sure you’ll get your money back.

As this chart shows, US 10-year bond prices rose as investors bid up government debt. It’s counter-intuitive, but as bond prices go up the yield on bonds declines.

Laurie Conheady, fixed interest strategist with JB Were, told The New Daily, “yields on Australian bonds fell about 10 basis points to 2.24 per cent as people looked for safety”.

“In the US yields fell about 12 basis points to 1.78 per cent,” he said.

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