Donald Trump promised a domestic programme of infrastructure spending, national growth and renewal in his US presidential acceptance speech.
After his surprise victory in the US election he reiterated some of the promises he’d made during the campaign, saying he would “fix” America’s inner cities and implement rebuilding of roads, bridges, hospitals and schools that would make them “second to none”.
He also said America would “double our growth” and have the strongest economy in the world.
There was nothing in this speech of his anti-globalisation and protectionist rhetoric which has stoked fears about the future of the US economy and its impact on global markets. However, as with much of Trump’s potential economic policy, much remains unclear at this stage.
Market reaction to the news of the real estate mogul and former TV personality’s election has so far been relatively muted falls. In the US the Dow futures were about 400 points lower as the result came in, while the S&P and Nasdaq futures were down over 2 percent. Japan’s Nikkei closed down -5.4 percent and Hong Kong’s Hang Seng at -2.2 percent.
In Europe, the FTSE 100 index initially fell 2 percent, dropping 140 points on opening, but had recovered to trade at 6,796 points approaching midday UK time. The German DAX was down 1.45 percent to 10,330 by midday.
In the currency markets, Mexico’s peso dropped by more than 13 percent to an all-time low against the dollar. The dollar fell 2.6 percent against the Japanese yen and the euro rose 1.8 percent to $1.1225.
Speaking to Bloomberg News this morning, Howard Davies, former head of the UK Financial Services Authority, now chairman of RBS, suggested: “The markets just don’t know how to digest this.”
Commenting on the acceptance speech he said that there is “a respectable argument for saying that the Trump recipe for increased spending by the government, perhaps compensated by slightly tighter monetary policy, may not be a bad economic prescription for the US…there is a need for a renewal of infrastructure.”
However, he added: “The worry is if it is accompanied by a protectionist impulse by the administration, that causes nervousness and a slowdown in global trade which negates domestic policy.”
In terms of initial reaction from the European real estate sector, Cushman & Wakefield was one of the first to comment, urging the industry to take the long view.
“Our sector is not the stock market and doesn’t experience wild swings or daily reactions. We need to take a longer view of the potential implications,” said Elisabeth Troni, the consultancy’s head of EMEA research, adding that the inevitable volatility in the financial markets will not necessarily translate into an immediate or meaningful impact on property markets.
Drawing comparisons with the shock of the vote for Brexit she said: “The vote for Brexit delivered an immediate shock, but since then UK economic data has held up relatively well. The drop in equity markets following the vote was recouped on Bank of England actions, a quick transfer of power and calmer views of a prolonged and uncertain exit. Trump won’t take office until 20 January, 2017. Before then he is likely to try and calm markets via conciliatory speeches, the nomination of key officials, and the setting out of his legislative priorities.”
An expected outcome of the election result is that investors will pile their money into the safe haven of the bond markets, acting to push down yields and making secure assets such as commercial real estate in the UK and continental Europe look attractive.
“Admittedly some UK/EU CRE markets will look fully priced as yields trend even lower, but prices can overshoot for a period,” added Troni. “Moreover, prime property has been acting as a bond substitute in recent years. With monetary policy likely to remain excessively lose, we see prime yields going even lower.”
Michael Gately, head of real estate research at Barings Real Estate Advisers, said: “While the surprise Trump victory creates uncertainty in the markets, we believe the real estate market’s solid fundamentals and underlying strength and transparency will mitigate some of the initial shock.”
While he said that Trump’s victory was “unlikely to be viewed favourably by markets or by our trading partners and investors overseas” in the near term, it is unclear how much of Trump’s agenda will be actually implemented, long-term.
“In this sense, we’re facing a scenario not unlike June’s Brexit vote, and as such, we believe the best approach to investing is to let the initial shock subside and focus on the implications of Trump’s cabinet appointment and policy proposals going forward,” he continued.
That the fundamentals underlying the US real estate market are sound and that it would take a very significant “exogenous shock” to derail the market, Gately added.
Adriano Amorese, a construction and property lawyer at Berwin Leighton Paisner, said that today’s events could spell a prolonged dip in the value of the dollar, leading to a slowdown in US investment activity in the UK property market.
“A Trump victory is something of a shock to the political system. It could result in a prolonged period of uncertainty and downward pressure on the dollar. The good news is that the significant drop in the value of the pound due to Brexit should (hopefully) mean the dollar has further to fall before this starts affecting transatlantic investment decisions,” Amorese said.
The tepid global response to Trump’s victory included statements from political leaders that economic ties would be maintained. In her statement congratulating Trump, UK prime minster Theresa May said: “We are, and will remain, strong and close partners on trade, security and defence. I look forward to working with President-elect Donald Trump, building on these ties to ensure the security and prosperity of our nations in the years ahead.”