9 major changes that could happen if Trump wins

October 27, 2016 3:50 pm


* Donald Trump goes up against bitter rival Hillary Clinton on November 8

* Trump’s campaign soured by allegations of misogyny and bullying

* Trump’s appeal lies with disaffected classes angry at social contract breakdown

* Domestic and foreign policy strategies lack detail

* There are a number of scenarios that could arise from a Trump victory

 

What if Donald Trump won? What if he actually went and did what quite frankly no-one would have predicted 18 months ago?

Saxo Bank’s Outrageous Predictions publication, which we’re in the process of putting together for December, would most probably have rejected the prospect of a Trump victory as simply too outlandish a call 12 months ago.

As it happens, Saxo’s head of forex strategy John J Hardy took the considerable leap of predicting that Hillary Clinton would win with a landslide and the Democrats would seize control of the senate and if the polls are anything to go by, Hardy could be in line for one of those relatively rare predictions that actually come true. (Let’s face it — if too many predictions came true, then Outrageous Predictions would hardly be doing its job, even in this most unpredictable of times….)

But we’ve been here before with the polls, memorably during the UK election of 2015 when former UK prime minister David Cameron confounded the odds and even more tellingly during the Brexit run-up when the polls encouraged a spike in GBPUSD on the night of the vote to 1.50 before the dawning reality hit sterling in the solar plexus with a blow from which it has never looked remotely like recovering from.

So, does that mean we can discount the polls? Probably not but the expression “pinch of salt” comes to mind. Pollsters methodology is no doubt every bit as good as it has ever been, but the unusual post-financial crisis environment that has emerged with the extreme breakdown of the social contract has created a wave of resentment and anger against elites that could carry Trump over the finishing line and render all those sophisticated methodologies meaningless in the face of the new reality.

After all, when Trump descends into the hate-filled invective that has alarmed so many, there are not that many, even perhaps among his hard core, who will publicly admit to being aligned with such comments. But, like the tragedy of Jo Cox’s murder in the week before the Brexit vote, many who would have reined in their bitterness in the immediate aftermath of that terrible event, will one week later have reverted back to their original position and voted for an EU exit.

Trump, no doubt, hopes for a similar outcome. And having established the case for his route to victory, it is incumbent upon us to anticipate 10 reasonable outcomes that we can look for from a Trump win.

And yes, the keyword here and with the gentlest of nods to Outrageous Predictions is reasonable. All of the outcomes we list below fall into the category of something that we think can put relatively high on the possibility/probability scale as opposed to the off-kilter premise that underpins the latter.

Without further ado then, let’s take a look at republican nominee Trump and try to come up with 9 plausible outcomes of a Trump presidency that we’d love to have your opinions on.

 

1. Mexico’s peso to plunge

It’s been well-documented that the Mexican peso has become a proxy for Donald Trump’s victory hopes with every swing of fortune in favour of the Republican nominee met by a corresponding swing to the downside for the peso.

When Clinton was revealed as suffering from pneumonia in the second week of September, USDMXN hit an all-time high and came within touching distance of breaking through the 20.0 handle.

Her subsequent recovery and performance in the one-on-one debates allied to Trump’s inability to avoid banana skin after banana skin ever since (skins 95% of the time of his own making) has returned the pair to a more manageable 18.50, but that is still some way above the level in the summer of 2015, prior to Trump’s announcement that he would run for the Republican nomination, at around 15.50.

Trump’s pledge to build a wall to keep illegal immigrants from crossing the border might benefit the likes of Mexican cement mixer Cemex SAB and have a host of others such as Granite Construction,Tetra Tech, Caterpillar and Fluor salivating, but there will be a direct and sharply correlated fall in the peso if Trump’s victory is confirmed on November 9.

How long and how steep that plunge might be is anyone’s guess but there is every possibility that it would break through the 20.00 handle in the short term before finding an equilibrium a few months down the line. Just like GBPUSD is finding its new level in the four months since the UK decided to leave the EU, a similar devaluation of the peso cannot be ruled out, although it might shift back towards a new equilibrium rather more quickly than sickly sterling.

Probability rating: The peso will plunge, but it is just a question of how far. We give it an 8/10 chance of hitting a new all-time high and going through 20.0.

USDMXN came close to breaking through the 20.0 handle last month

 

2. And it’s a jump to the right

It’s a no-brainer of course that much of Trump’s appeal has been based upon lowest-common-denominator nationalism and you hardly need to be a rocket scientist to expect a sharp move to the right in the US political spectrum that will have enormous repercussions on the international stage.

Trump’s appeal to a large segment of his hard core has seen the Chinese, the Mexicans, Europeans (he did after all push for a Brexit outcome once he came to understand what Brexit actually meant) and various others come under fire as the shift towards protectionism gathers pace.

In fact, there is hardly a nation that hasn’t felt the rasp of Trump’s tongue at some point with the curious exception of the Russians (more of that later) as an America-first mantra has had them rolling in the aisles and minorities in the US extremely distressed at the direction of a country founded on immigration and melting-pot principles.

What does this rightward lurch mean? At the very least, we can expect the tariff barriers to be erected in a mirror image of that Mexican wall and an inward turn in US foreign policy that leaves the international stage much more at the behest of other big geopolitical players like Russia and China.

At the very worst, we could be witnessing the death knell of the United Nations through a Trump presidency. While the UN has a chequered history and is plagued by criticisms of corruption and ineffectiveness, it has managed to tread a line between bitter foes for the best part of 70 years.

With Russia’s disdain for the UN all-too-evident and China looking to secure its position as unrivalled supremo in the South China Sea, the UN is already struggling to establish common ground within the Security Council. A president in The White House with a similar disregard for the art of compromise and negotiation will have little time for the UN structure which, after all, represents a cornerstone of that status quo that Trump rails against.

Outlandish though that claim might appear, the collapse of the ill-fated League of Nations in the interwar period provides the precedent. When protectionism rules, supra-nationalist institutions (take note EU) come under enormous pressure.

The UN will probably continue to limp on through a Trump presidency. But its effectiveness will probably be gravely damaged by a Trump win.

Probability rating: The lurch to the right is a certainty (9/10), but a weakened UN will limp on. We rate the latter’s ultimate demise as a 2/10 chance.

 

3. Yellen’s days are numbered

Federal Reserve chair Janet Yellen has been caught in the crossfire between Trump and Clinton and Trump has been explicit in his belief that the Fed has been used as a political tool by the establishment.

Yellen’s somewhat lacklustre performances alone might be enough to have both Clinton and Trump turning a hard eye towards her come 2018 when her tenure is up for review, but it’s a certainty that Trump will look to have her out of office at the first possible moment.

It is also highly likely that Trump will look to rein in the role of the Fed itself, which has emerged as a convenient (and sometimes deserving) scapegoat for the ills afflicting the very constituency that forms the Republican nominee’s core base. The failure of the Fed to adequately deal with the fallout of the global financial crisis and its fuelling of an equities boom that has done little to address the problems of the real economy have made it vulnerable to attack from all sides of the political spectrum but especially so, from that segment of the right that has latched on to that disaffected foment of anger.

Probability rating: 10/10 if Trump walks through The-White-House door.

 

4. Quitaly

It’s perhaps a little simplistic to draw parallels between the Italian referendum set for December 4 and the Brexit vote, given that the former is about constitutional reform and not a direct vote on EU membership.

A defeat for prime minister Matteo Renzi’s push for a ‘Yes’ vote will nevertheless be a hammer blow for the pro-European that will almost certainly see him quit, another lurch to the extremes and also an attack on the whole supranational ideal that has sustained Europe since 1945 and has its ultimate embodiment in the EU and the common currency.

A Renzi defeat would almost certainly lead to another election and the opportunity for Italy’s populist Five Star Movement to deal a decisive blow on the nationalist front.

A Trump victory will feed the anti-establishment narrative and widen the door that says anything is possible. A Renzi loss would be like a domino affect after the Brexit and add yet more pressure on Brussels already trying to deal with one naughty boy in the corner.

The thought that it might have to deal with two at some point down the line is almost too much for the likes of Donald Tusk to even contemplate and they will be praying for a Renzi victory, a victory which will be more likely if Trump does not succeed.

Probability rating: 7/10 if Trump wins, but 3/10 if Clinton succeeds. It’s not inextricably linked, but it does feed into the whole anti-status quo narrative.

 

5. Media polarisation

Strictly speaking, this is less about freedom of press restrictions and more about that peculiar polarisation of news in the US that leads voters to only look for their news from channels that automatically feed their core beliefs and, sad to say, prejudices.

Fox News as an example is notorious for plying a path that has much in common with the message that Trump promotes. There is little reason to suggest that this will change much in a Trump presidency and quite probably will become more extreme. And the logical extension of that process is the opposing view will become increasingly extreme too to keep up with the rhetoric.

Little wonder then that outsiders look at what is happening with the US with a weary shake of the head and more than a bit of bewilderment. The country that once offered so much in terms of press freedoms has in some ways, become a parody of communist state. Yes, the freedoms still exist on paper, but media chiefs, presumably at the behest of rich owners, peddle a line that is every bit in tune with the “party” message as say, Xinhua in China would be expected to be with the Beijing leadership. Sorry times.

Probability rating: It’s already happened and is only likely to get worse whoever wins.

 

6. The end to rigged elections

It’s a funny parallel but those of you with long memories will probably remember the ballot-box pencil scandal that briefly did the rounds in the run-up to the Brexit vote.

UKIP were particularly hot on this one when they felt the campaign was going away from them in the aftermath of the Jo Cox murder (don’t forget that Nigel Farage virtually conceded on the night of the referendum) and then, all of a sudden, when victory was confirmed, it was never mentioned again.

Trump has pulled the same rabbit out of the hat with two weeks to go and you can expect this to be quietly shelved after November 9 if indeed Trump does emerge victorious. You can’t blame Trump for pursuing this line though as it worked for UKIP and Farage who has been rather visible on the Trump campaign trail in recent weeks.

Probability rating: 9/10 if Trump wins and 0/10 if he doesn’t. The myth of the rigged election will never be allowed to die if the latter scenario is the outcome.

 

7. An end to bipolar politics in the US

We’ve been here of course before with the likes of Ross Perot challenging the status quo only to see the reassertion of bipolarism in US politics to the Democrats or the Republicans. But this time, we really could see a move towards a third way develop given the distaste with which both the candidates are viewed.

There is a growing ‘No’ constituency in the US to both candidates which speaks to the fundamental dissatisfaction with the alternatives on offer and the Republican party looks particularly vulnerable to a split as the traditionalists fight against a shift that had its genesis in the Tea Party movement and has now found its latest manifestation in Donald Trump.

Ironically, a Trump victory against the odds could solve this for now, but the barely concealed contempt that party bigwigs like John McCain and Paul Ryan have for Trump could be the spark for a breakaway at some point down the line. Whoever wins the current election, there is a recognition that the status quo is at breaking point and that could be the touch paper to a new kind of politics in the US that will ultimately see genuine choice stretch beyond the two traditional foes.

Probability rating: 9/10. This is more a question of when rather than if. It may yet take another term or two for this to become truly apparent.

 

8. Improved relations with Russia

I had the dubious pleasure of meeting Donald Trump in Moscow in 1997 when he already showed a fondness for Russia back then, and there is a lot of speculation regarding the links that exist between Trump and Moscow.

We’re not going to add fuel to the that fire here but, given the pronouncements that Trump has made repeatedly on his admiration for Vladimir Putin and his hopes to work with the Russians over Syria, improved relations with Russia seem a given.

Russia of course is an incredibly conservative bear (despite its bold foreign-policy moves of the last two years) and the unpredictability of a Trump presidency might not appeal to the Kremlin, but Trump’s pleas to Moscow to unveil more hacked messages related to the Clinton email saga and bromantic pronouncements on Putin seem to indicate that reconciliaton is his immediate aim. What that means for global politics is anyone’s guess.

It might also lead to a consolidation of USDRUB beneath 60 if Trump pushes for an end to sanctions. Expect that to reverse sharply over the course of Trump’s term given his unpredictability and knee-jerk, off-the-cuff rhetoric and actions.

Probability rating: 9/10 if Trump wins and every possibility that within two years, hostility between Moscow and Washington might be at its worst at any time since 1985.

 

9. Oil to rocket

Trump’s anti-Muslim rhetoric is perhaps the biggest obstacle to peace in the Middle East and his victory could deliver ISIS and Al-Qaeda with just the fillip they need to revive their organisations and refocus attention on the US as the No.1 enemy.

If Trump does introduce a blanket ban on Muslims entering US territory, he will in one fell blow help swell the ranks of the anti-American forces and put Washington on a collision course that will be hard to pull out of.Given oil-price sensitivities to geopolitical tensions in the Middle East, that could lead to spikes in the price that takes oil beyond its current cap at around $50/barrel to test much higher ground.

ISIS knows exactly what it is doing when it targets the oil fields and installations of Kirkuk. A sharp reduction or the threat of any sharp reduction in supply will do more to effect the price of oil than any oil production deal between Russia and OPEC.

If we’re going to widen this to other commodities, then gold too ought to get a tailwind from a Trump victory and there might even be some flight to digital currency Bitcoin which retails currently at around $660. It may be some way off its peaks in December 2013 when it briefly rivalled the gold price, but investors may want to put their money in all sorts of places and Bitcoin could be a beneficiary.

Probability rating: 7/10 on both oil and gold. Bitcoin 3/10

 

(The views expressed in this article are the author’s own and do not necessarily reflect AMEinfo’s editorial policy.)

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Martin O'Rourke
By Martin O'Rourke
Managing editor at Saxo Bank



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