July 25, AtoZForex – As it appears, Donald Trump’s US elections potential win could cause a wave of disruptions for the financial markets.
President Trump vs. Financial Markets
Donald Trump has appeared as the second biggest threat to the political world after the Brexit vote. Additionally, in the case of the Republican Party nominee for President of the US winning the US elections, damage could impact the low bond yields on European banks, according to some of the analysts.
As it is reported by Chief Investment Officer, Fixed Income at AXA Investment Managers, Chris Iggo, bond investors should prepare for the market turmoil that could result from Donald Trump winning the US elections. He also commented:
“Brexit-shocked investors are now considering the reality that Donald Trump’s election as president of the US could be the next source of political and economic uncertainty in this extraordinary year.”
Mr. Iggo also added:
“Mr. Trump’s mooted policy on redeeming Treasury debt under par could also have a radical impact if it were followed through . . . The very foundation of the global financial system is in part based on the confidence that Treasury debt is backed by the full faith of the US government — it is a stalwart haven asset class. If there was even a small chance that was no longer the case, the consequences for global markets and investor confidence could be catastrophic.”
EU banks can be in trouble
Another view of Managing Director at PIMCO, Philippe Bodereau, tells us about the troubles of European banks. Mr. Bodereau says that the recession faced by the EU banks are based on the earnings, not solvency. He additionally commented on the issue of President Trump vs. Financial Markets:
“Banks must adjust their business models to the realities of lower-for-longer rates, which means cost-cutting and consolidation. Bank shareholders must also accept that high single-digit returns-on-equity are acceptable in a zero rate world, particularly at institutions that have significantly reduced leverage.”
One more perspective comes from the Markets Editor at Financial Times, Michael Mackenzie. He says:
“A decisive flick of the fiscal switch to loosen austerity would herald a stampede from the best-performing sectors of global markets. The ensuing surge in market volatility would prompt investors to sell their holdings based on risk management models — known as a value-at-risk (Var) shock — in order to avoid losses.”
Mr. Mackenzie believes that the end of austerity could result in the big turmoil for financial markets. He also highlighted how negative interest rates have created yield-seeking trading, which, in turn, leads to an abrupt decrease in “value at risk”.
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