By PETER S. GOODMAN
New York Times News Service
As the realization worked its way around the planet that Donald Trump would become the next president of the United States, global investors reacted as if the world had caught fire. They yanked their money from the marketplace in an unrestrained bout of selling reminiscent of the outbreak of war.
They sold stocks – first in Asia and then in Europe, with New York trading set for a fall as well, according to the futures markets. They sold oil and the Mexican peso, pushing it to a record low. They even sold the U.S. dollar, which nearly always functions as a refuge in times of chaos but suddenly seemed like a green piece of paper issued by a government seized by insurrection.
Other traditional havens, like gold and the Japanese yen, rose in moves that had all the hallmarks of what traders usually describe as a flight to safety. But the dollar’s decline underscored a stark new reality: This time, very little seemed safe.
As Trump offered his victory speech in New York – eschewing the crude and divisive rhetoric that had brought him accusations of racism, misogyny and recklessness – markets pared some of their losses. But the ink was still decidedly red.
The stampede for the exits resonated as recognition that a vast range of policies framing global commerce – from trade to immigration to defense to climate change – were subject to a potentially radical refashioning.
It is said frequently that what markets crave more than anything is certainty. The globe suddenly seems in dire shortage of that.
The stunning June vote in Britain to abandon the European Union effectively redrew the regional map governing trade, risking a rupture within a marketplace encompassing 500 million relatively affluent people.
But a Trump presidency presented the possibility that the whole atlas for international commerce had been torn to bits.
During the campaign, he vowed to renegotiate the North American Free Trade Agreement with Mexico and Canada. He repeatedly promised to slap punitive tariffs on imports from China, raising the prospect of a trade war between the world’s two largest economies.
Trump at one point threatened to renegotiate the terms of U.S. debt, effectively raising the prospect of a sovereign default in the epicenter of the global financial system and a loss of confidence in the reliability of the U.S. currency. If faith in the basic sanctity of the dollar cannot be taken as a given, then nearly every crevice of finance is subject to some additional layer of risk – from mortgages to corporate bonds to government debt.
More broadly, Trump vowed to radically alter a host of agreements made between the U.S. government and significant actors on the global stage, from the Paris accord setting out targets to reduce the pollutants contributing to climate change to the deal aimed at constraining Iran’s nuclear aspirations. He promised to escalate the battle against the Islamic State, intensifying bombing in Iraq and Syria. He vowed to build a wall along the Mexican border.
Taken as a whole, markets digested the looming Trump presidency as a signal that the knowns are vastly outnumbered by the unknowns – and that investors should move their money to the sidelines.
“This is a negative shock for markets,” said Ricardo Reis, an economist at the London School of Economics. “For sure, this is a huge increase in uncertainty. And for the most part what certainty is available seems bad. Like the Brexit vote, this raises the likelihood that trade deals will be repudiated and borders will be closed.”
In recent weeks, markets around the world had largely assumed the election would be won by Hillary Clinton, a known quantity with a track record in public life going back more than a quarter century.
But as returns emerged Tuesday evening, raising the possibility that two previously unimaginable words – “President Trump” – were on the verge of becoming official nomenclature, markets in Tokyo, Hong Kong, Australia and the rest of Asia dropped precipitously, shedding as much as 6 percent of their value by early afternoon.
As trading commenced in Europe, stock markets in Germany, Spain and Italy were all down more than 3 percent. London shares opened down some 2 percent but then recovered somewhat.
Stock market futures indicated an almost-certain sell-off once Wall Street awoke. Futures on the Dow Jones industrial average dropped more than 4 percent, and the broader Standard & Poor’s 500-stock index plunged by about 5 percent, although both gained back some ground after Trump’s victory speech.
As currency markets fluctuated, they appeared to be functioning as barometers of national prospects in the wildly unpredictable new era unfolding.
The dollar weakened broadly against many major currencies, surrendering more than 1 percent on a broad index in Asian trading. Economists construed that as a sign that markets expect that protectionist policies championed by an incoming Trump administration will damage economic growth prospects in the United States.
The Mexican peso fell in an apparent indication that markets assume Trump will follow through on his promises to make it harder for U.S. companies to manufacture goods south of the border while selling finished goods in the United States. Some 80 percent of Mexico’s exports land in the United States.
The yen rallied against the dollar, as investors sought refuge in the currency. This intensified pressure on Japanese officials, who have often intervened in markets to lower the value of the yen in an effort to bolster exports. Officials from Japan’s Finance Ministry, the Bank of the Japan and the Financial Services Agency met in Tokyo on Wednesday afternoon, with one warning obliquely that it could intervene in currency markets.
But beyond such immediate concerns, the looming ascent of Trump to the most powerful office on earth has injected enormous variables into the calculations of those who control money. This appeared to be the message contained within the frenzied selling.
It remains to be seen whether Trump will do all he said during his campaign, said Nigel Green, founder and chief executive officer of deVere Group, a financial management firm, in a note to clients. “For now,” he wrote, “Trump winning is sending shock waves across the world.”