Emerging Markets Monitor - Nov. 6
Emerging Markets Monitor - Nov. 6
Trump's Win and the US Economy, EM Currencies Rattled, 'Howdy, Modi' and 'Namaste Trump', Mexico Exports to US Soar, Asia Braces for More Tariffs, UAE Minister Says EM Rising
The Top Stories Shaping Emerging Markets - November 6 (US Election Edition)
What a Trump Win Means for the U.S Economy + Dollar Surges on Trump Victory As Investors Price in New Era of Tariffs and Tax Cuts
Wall Street Journal and the Financial Times
“Voters have re-elected Donald Trump in great part out of dissatisfaction with the economy under President Biden and nostalgia for the low inflation and prepandemic conditions of the former president’s first term,” Greg Ip writes in the Wall Street Journal.
“To fulfill those voters’ hopes, Trump’s main economic tools will be the same as in that first term: tariffs and tax cuts. But there’s a difference. The tariffs he’s planning will be broader and higher, and the tax cuts more narrowly targeted.”
“The consensus of economists and investors is that tariffs will put upward pressure on inflation while tax cuts could spur growth and add to deficits, together tending to nudge interest rates higher. And indeed, long-term Treasury bond yields have risen recently on strong economic data and expectations of a Trump victory.”
“…For one thing, he inherits a relatively benign outlook. Growth has been surprisingly strong while inflation has fallen substantially from its peaks, although prices are still high. The Federal Reserve is set to trim interest rates Thursday for the second time this year. This should keep recession risks to a minimum.”
“As for Trump’s own plans, he may not raise tariffs as much as threatened, opting for negotiations over trade war. Congress may water down his tax plans.” Greg Ip writes.
Meanwhile, the FT reports that “The dollar surged by its most since the 2016 Brexit referendum and Wall Street was poised for big gains as Donald Trump’s historic US election victory sent investors around the world scrambling to price in a new regime of trade tariffs and tax cuts.”
“The US currency raced higher against the euro, the yen and the pound on Wednesday as traders returned to so-called ‘Trump trades’ in expectation that the president-elect’s plans on tariffs and taxes would boost stocks, push up inflation and reduce the pace of interest rate cuts.”
“…Commodities prices sank as investors predicted that tariffs would knock global growth. Copper prices fell 4 per cent by afternoon in London to $9,350 per tonne. Brent crude oil was 2.7 per cent lower at $73.46 a barrel. ‘America First’ means commodities second,’ said Francisco Blanch, a commodities strategist at Bank of America.”
“Bitcoin was up nearly 7 per cent to $73,949, having touched a record high earlier in the session. Trump has positioned himself as the pro-cryptocurrency candidate, pledging to make the US ‘the bitcoin superpower of the world’.”
“A red sweep could create a ‘high-octane’ US economy that drives global equities higher over the next year ‘as earnings expand and margins remain high’, said Samy Chaar, chief economist at Lombard Odier.” The FT reports.
Trump Win Roils Some Emerging Markets. Mexico Peso Plummets, China Equities Rattled.
Bloomberg
“The [Mexican] peso, often seen as the currency most vulnerable to Trump’s trade policies, tumbled as much as 3.5%, helping to set up the emerging-market currency gauge for its worst day since February 2023. China’s stock indexes in Hong Kong slid more than 2.5% as traders priced in punitive tariffs for the world’s second-biggest economy.”
“Emerging markets were hit hard early Wednesday by the so-called Trump trade as they stand to lose from his ‘America first’ economic priorities, including restrictions on imports and immigration. It was Trump’s trade war against China in 2018, during his first term, that halted an EM equity rally and sparked an underperformance relative to the US that continues to this day. This time around, Trump has also pointed to an expansive fiscal policy that’s seen as inflationary and could undermine developing nations’ capacity to cut borrowing costs.”
“…Traders had been preparing for a Trump victory in recent weeks and volatility in the peso soared. The Republican’s proposals would hit Mexico — the largest trade partner with the US — particularly hard. On the campaign trail, Trump said automakers building plants in Mexico are a ‘serious threat’ to the US.”
“…Emerging markets already face a host of macro challenges, many of which would be compounded by Trump’s policy proposals. China’s economy remains mired in a deflationary spiral despite hundreds of billions of dollars in monetary stimulus.”
“Now, the US election result ‘opens the door to a stronger US dollar, higher US real rates, and tariff policies that disproportionately damage EM exporters,’ said Ed Al-Hussainy, a New York-based strategist at Columbia Threadneedle. Bloomberg reports.
The AP also reported that Iran’s currency plummeted to an all-time low on Trump’s win. “The rial traded at 703,000 rials to the dollar, traders in Tehran said. The rate could still change throughout the day. Iran’s Central Bank could flood the market with more hard currencies as an attempt to improve the rate, as it has done in the past.”AP reports.
From "‘Howdy, Modi’ to ‘Namaste Trump’: A Strong Bond Between US President-Elect and Indian PM
Hindustan Times
“The relationship between Donald Trump, who is set to be the 47th president of the United States after winning the US elections on Wednesday, and Prime Minister Narendra Modi has been characterized by strong diplomatic ties, strategic cooperation, and evident personal warmth.”
“On Wednesday, PM Narendra Modi was among the first world leaders to congratulate Donald Trump on a ‘historic election victory,’ adding that he was looking forward to working with the election frontrunner.”
“…Both PM Narendra Modi and Donald Trump as leaders prioritized strengthening defense and security ties, particularly in countering terrorism and addressing regional threats, such as those posed by Pakistan. Their shared vision for a ‘free and open Indo-Pacific led to closer cooperation, especially in relation to China’s growing influence. This aligned vision deepened their collaboration in defence and security matters, including joint military exercises and India’s role in the Quad alliance.”
“Modi and Trump enjoyed a personal bond, demonstrated by their public interactions at large-scale events like ‘Howdy, Modi!’ in 2019 and ‘Namaste Trump!’ in 2020.
“These events showcased their mutual admiration and helped strengthen the diplomatic relationship between the two leaders. Their camaraderie was widely viewed as a reflection of a strong personal connection, contributing to the overall strength of the bilateral ties.” Hindustan Times reports.
As Trump Wins, Mexico Exports to the U.S Soaring, Up 6.5% Through Q3
Mexico News Daily
“Mexico contributed a record 15.9% of international trade to the United States between January and September, the U.S. Census Bureau reported Tuesday.”
“The cumulative value of Mexican exports to the U.S. in the first three quarters of 2024 was nearly $378.9 billion, marking a year-on-year increase of 6.5%. Meanwhile, U.S. exports to Mexico totaled $253.4 billion, with a 4.2% year-on-year increase.”
“Mexico overtook China as the U.S.’s largest trade partner at the beginning of 2023 for the first time in two decades. Revenue from Mexico’s exports to the U.S. totaled just over $593 billion last year. In 2024, Mexico is also on track to have a record-breaking year for export revenue.”
“However, things could soon change… On Monday, Trump threatened an ‘immediate’ tariff of 25% on all Mexican exports. The Republican candidate also threatened to impose a tariff as high as is necessary to stop companies importing cars made in Mexico.” Mexico News Daily reports.
Asia Braces for Steep China Tariffs and Security Turmoil in Second Trump Term
Financial Times
”Asia is bracing for Donald Trump’s return to the White House, after he threatened on the campaign trail to inflict sweeping tariffs on China and questioned Washington’s security commitments to Taiwan and US allies South Korea and Japan.”
“The Republican former president has proposed blanket tariffs of more than 60 per cent on all Chinese imports and ending the country’s most favoured nation trading status, moves that would hit China’s faltering economy and send shockwaves through global supply chains.”
“Trump’s first term in office sparked an unprecedented US-China trade war, spurring a rush to shift supply chains to south-east Asia, India and other parts of the region…Citi analysts estimated that in an extreme scenario, in which Beijing was unable to divert some of its trade to the US through other countries, Trump’s 60 per cent tariff would knock 2.4 percentage points off Chinese GDP growth.”
“Chinese officials were tight-lipped on Wednesday, with a foreign ministry spokesperson saying China ‘respect[s] the choice of the American people’. Asian currencies, particularly of those countries that are heavy exporters to the US, slid against the dollar in the wake of Trump’s victory.” The FT reports.
‘Dawn of a New Era’ Looms Driven by Rise of Emerging Markets, AI, and Energy Transformation, Top UAE Minister Says
The National
“Dr Al Jaber [UAE Minister of Industry and Advanced Technology, Cop28 President, and ADNOC CEO] added that the world was facing the ‘dawn of a new era’ defined by three megatrends – the rise of the Global South and emerging markets, the transformation of energy systems, and the exponential growth of artificial intelligence. ‘These three megatrends present mega opportunities that demand mega solutions,’ he added.”
“Dr Al Jaber said that by 2050 the world’s population would grow by 1.7 billion, mostly in the Global South, and as a result energy markets must ‘shift and grow.”
“‘Wind and solar will expand seven times. Liquefied natural gas will grow by 65 per cent. Oil will continue to be used for fuel and as a building block for many essential products,’ he said.”
"‘And as the world becomes increasingly urban, demand for electricity will double. Adding to this demand is AI ... and it has the potential to accelerate the transformation of energy systems and to supercharge low carbon growth. But the exponential growth of AI is also creating a power surge that no one anticipated 18 months ago.’” The National reports
“Smooth seas do not make skilled sailors.” - African proverb
trump has a history of underpaid illegal workers throughout his empire, and outsourcing branded products to china.
but more importantly, many of his wealthy supporters rely on low-mid skilled workers in mexico for export to the u.s. and elsewhere under the purview of american companies. so disrupting this hurts them directly, not to mention their equity portfolio.