Market toasts smooth U.S. polls

Donald Trump’s victory will ensure a lower tax environment that should boost sentiment and spending in the near term, according to global investment bank ING.

However, promised tariffs, immigration controls and higher borrowing costs will increasingly become headwinds through his presidential term, ING added.

Americans have spoken and Donald Trump will be the 47th President of the United States.

He will also become only the second president, after Grover Cleveland, to serve non-consecutive terms.

The quick results of a clean US election and assurance of a strong Philippine-US relations are key to boosting investor confidence, stock analysts said.

“Short term, I think the most important is a clean election. If there are any protests, it might cause some choppiness in the market,” said Luis Limlingan, head of sales at Regina Capital Development Corp., noting that investors want a smooth transition. He added, “Long term, regardless of the relations, it would send a positive signal to the market if the Philippines can maintain or strengthen its diplomatic relations.”

Markets are also considering a possible Trump win, leading to a stronger dollar and higher US Treasury yields, among other economic effects.

According to Michael Ricafort, chief economist of Rizal Commercial Banking Corp., the markets recently priced in the possibility of a Trump victory led to higher US dollar against major global currencies to new highs in nearly four months and higher 10-year US Treasury yields at new four-month highs of 4.40 percent.

“US stock markets near one-week highs and up from one-month lows recently but still near record highs,” he said, adding that a Trump victory could lead to higher US inflation amid more protectionist policies and a trade war, which might lead to higher tariff rates on imports from China and other countries, tighter immigration rules increasing US labor costs, and deficit spending on possible tax cuts.

Meanwhile, the peso-dollar exchange rate hit a four-month high, reaching an intraday peak of P58.75, nearing the immediate high of 58.92 posted on 27 July 2024

“Going forward, the performance of the US dollar or peso exchange rate would be partly a function of intervention or defense, as consistently seen over the past two years; amid the need to better manage inflation and inflation expectations to fulfill the price stability mandate that would also require stability in the peso exchange rate, which affects import prices or costs and overall inflation,” Ricafort said.

“Between the two, a Trump presidency is expected to have a more direct effect on the global economy, including ours,” Japhet Tantiangco, a senior research analyst at Philstocks Financial Inc., echoed, also attributing to the US’ protectionist policies, which could limit trade, “in turn dampening the global economy.”

Index turns red

The local bourse ended in the red, slipping 92.52 points, or 1.27 percent, to close at 7,165.42.

All sectors dropped, with Property being the biggest loser, declining by 2.94 percent, followed by Services and Banking, down by 1.93 percent and 0.83 percent, respectively.

Century Pacific Food Inc. was the top index gainer, climbing 1.94 percent to P42, while Ayala Land Inc. was at the bottom, falling 4.35 percent to P33.

Investors cautious trading during the US presidential polls and the weakening of the local currency buoyed the stock index, according to Tantiangco.

The net market value turnover was P4.41 billion, with losers outweighing winners 113 to 86.

International Container Terminal Services, Inc. was the most actively traded stock at P706,977,548 down by 3.37 percent.

The peso closed at P58.661 to a dollar, from P58.315 on Tuesday. It opened the day at P58.5 and traded between 58.5 and 58.77. The weighted average was 58.667.

Headwinds seen on tariffs, loan costs

While opinion polls had suggested a close-run race, financial markets appeared increasingly confident of such an outcome with equity markets, the dollar and Treasury yields all rising in recent weeks. Whether these trends remain in place depends on how quickly Trump can marshal his party and pass his legislative agenda through Congress.

The first issue to deal with is addressing the Federal debt limit, which will be reinstated on 2 January.

Current Treasury Secretary Janet Yellen will immediately deploy “extraordinary measures” and use cash on hand to continue paying the government’s fiscal obligations.

Trump will then be inaugurated on 20 January and his team will have to quickly spring into action to agree a deal on the budget and get the ceiling lifted or suspended further, ING indicated.

At the moment it appears the Republicans are on course for a clean sweep with the presidency, Senate and House, which would mean this should be straightforward.

However, if the Democrats manage to win the House this could be a contentious period that will eat up time and cause market angst, according to ING.

Under this second scenario, it would give an early signal of whether his ability to pass tax cuts is going to be constrained.