Fra BNP Paribas:
Donald Trump has become the US president-elect. Control of Congress remains in the hands of Republicans, which will undoubtedly provide a boost to executive power that has experienced a divided government for the past six years.
We expect less fiscal stimulus than Mr Trump has planned as he is likely to face opposition and roadblocks from his own party as well as Democrats. Results With the majority of the states “called”, Donald Trump appears to be the president-elect. The race was plagued by the historic unfavourability readings for both candidates, but in the end Mr Trump surprised his doubters (even those in his own party).
A whole host of surprises emerged in the state-by-state results with the bulk of the so-called swing states falling into Trump’s camp. The total electoral vote tally is a projected 294 for Trump to 244 for Clinton. Republicans won the presidency as well as kept their majority in both the Senate and the House.
Immediate market reaction: Overnight markets viewed the results as “risk off”, with a hit to global equities, lower treasury yields and the dollar weakening: in recent years, ”risk off’ environments have seen a weaker dollar, and a stronger yen and euro, and, in addition, the market has placed a lower likelihood on a Fed rate hike in December. We expect an eventual bounce back in risky assets as more clarity emerges on policies and as the fiscal implications sink in, though this could take some time.
After the dust settles following the immediate market reaction, we would expect some support in the corporate sector, as Mr Trump’s views are very pro-business. The odds of a rate hike in December have fallen sharply, given the markets’ reaction. Whether or not a hike is, in fact, delivered will depend on how markets evolve in the coming weeks.
Medium-term expectations The fiscal plan from Mr Trump has been scored by a number of institutions as quite expansionary, with heavy contributions from higher infrastructure spending and lower taxes. With an agenda-setting power in both the House and the Senate, Republicans will likely force a vote on policies that Democrats would rather avoid – though this is unlikely to mean that we would get Trump’s plan at face value. In the United States, a simple majority from the House and Senate is needed, as well as the president’s approval, to pass a bill into law.
However, without a super-majority (more than 60% of the seats in either house), a bill can be stopped by a filibuster (a prolonged speech, usually by a member of the opposing party, that obstructs the legislative process). The US federal government deficit has shrunk substantially over recent years, with the deficit declining to an estimated 3.4% of GDP – about 0.5pp above the average deficit since 1970.
The non-partisan Congressional Budget Office (CBO) estimates that under current law there will be little change in 2017. All told, given current law, the CBO expects that federal government deficits, after declining slightly near term, are expected to grow about 0.2pp per
