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Emily’s take on Trump

This week will go down in history as one where Americans voted against the establishment. Wednesday’s result caused surprise, and it’s fair to say concern, around the world. First Brexit, now this result, 2016 is certainly a year for the books. But leaving all political opinions to one side, what impact will this change in the political environment have on the financial landscape? And should we change the way we approach our personal finances because of it?

What does a Trump presidency mean?

As the election result started to become clear in the early hours of Wednesday morning, investors started to sell their risky assets. But by the end of the day, they had seemingly decided that the world wasn’t going to end, and equity started to rally. Ultimately it’s unclear why this happened, and it has only been a few days, everything could change next week. But there are a few factors which could have helped this:

  • The presence of a clear winner, and a quick concession helped to eliminate some of the uncertainty in the market.
  • Investors were also reassured by Trump’s acceptance speech which showed a move to the centre.
  • Republicans traditionally favour business and they now control the Senate and the House of Representatives, there could be a change in taxes that favour business.
  • And we can’t ignore the impact of Brexit. Brexit has shown us that markets recover, so investors were seemingly happy to buy.

However, an early recovery from markets does not mean we’re out of the woods. Markets and investors will continue to watch for policy measures that show what a Trump presidency really means.

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Inflation is trending upwards

Inflation expectations are starting to trend upwards. Markets are now anticipating inflation to rise more quickly; a similar story can be seen in the UK, the US, and across the Eurozone. This can in part be linked to Trump, with his election it seems that we might see a shift in focus from monetary policy to fiscal policy. The possibility of increased infrastructure spending would improve the quality of our roads and bridges, GDP growth would start to pick up, and this would enable monetary policy to go back to ‘normal’ and interest rates could start to rise. This move would be welcome news for savers, but it isn’t all good news. It raises the risk of higher inflation and potentially higher budget deficits down the road.

A change in the measure of inflation

In amongst the Trump headlines you may have missed the fact that the Office of National Statistics is going to be changing its measure of inflation. The measure is changing to include housing costs for the first time. From March 2017 the measure of inflation will include the costs of owning, maintaining and living in your own home, it will include council tax. It’s unclear whether the Bank of England will also move to this measure. This matters as inflation will likely be shown to be higher than it currently is. In September CPIH stood a 1.2%, whilst CPI was 1%. Over recent years CPI hasn’t risen that much, but household costs have been going up. As this is often a household’s largest expense it could give us a more accurate indication of cost growth over time.

Should you have any questions on how these events could impact investments, please get in touch. This column only works if it helps you.

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