The market reaction has already seen a sharp drop in equity markets and a return of risk aversion that is visible in a higher gold price, lower oil price and flight into funding currencies such as the Swiss franc and Japanese yen. Emerging Market currencies are generally on the back-foot, especially the Mexican Peso which is back at the lows seen at the time of the “Tequila Crisis” in 1994.

Expectations of a Fed rate hike at the December Federal Open Market Committee (FOMC) meeting are fading fast and Janet Yellen’s position at the Fed is now under pressure.

Mr Trump’s protectionist policy risks triggering a currency and trade war and the probability of US/global recession increases as a result.

Of course, the market reaction to the Brexit vote reminds us that the “gloom and doom” can easily be overdone and equity markets always have the capacity to bounce back.
However, Mr Trump’s victory is representative of a voter push back to the perceived effects of globalisation that have not been to the advantage of the average worker and is reflected in a rise of so-called ”populist” political agendas, not just in the UK but throughout the Eurozone.

Next year’s French and German elections will likely see changes of government and also changes in economic policy that is more growth-oriented.

The implication for investors is that the changing political and economic landscape, once near-term volatility fades, is that the 35 year bull market in fixed income might be coming to a close as greater fiscal activism and increased protectionism results in higher inflation in the major economies.

For equity markets, central banks will move away from unconventional policies which have helped elevate equity markets and that support will gradually fade through 2017. The challenge is whether an increase in pricing power and fiscal-led growth prospects can improve both earnings and investment returns.

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