The Trump Triumph’s Truculent Trades

Emerging market currencies, particularly Asian and Latin American ones in the cross-hairs of promised trade pact renegotiation and retaliation, were roiled by US President-elect Trump’s victory, which may also coincide with a Federal Reserve December rate hike with good continuing job and GDP growth numbers.  Protectionism would exacerbate the underlying trend of flat global export expansion as countries try to shift to boosting domestic demand, aided by cross-border capital inflow return as of mid-year according to industry and official figures. They may also ease fiscal and monetary policies, but deficits and possible exchange rate implications narrow maneuvering room. Units in Mexico, Korea, and China have been most directly exposed, but the impact reaches to South Africa’s rand as a universe proxy, the zloty as an EU estrangement bet and Russia’s ruble as a reconciliation one, and to Middle East plays that may reflect future commodity and geopolitical direction. The Mexican peso dipped below 20 per dollar after the win, as authorities prepared to intervene after meeting the budget deficit target and raising benchmark rates 150 basis points the past six months. State oil company PEMEX bonds also fell as the December block auction may receive few bids pending the Washington administration shift, which could jeopardize $15 billion in proposed facility spending. The central bank and finance ministry announced contingency plans ahead of the election to sell dollars from reserves, and the Trump campaign’s immigration, border wall and NAFTA revision platform sours the outlook but they have refrained from action barring major depreciation translation into consumer inflation, projected at 4 percent next year. The candidate blamed the tripartite trade deal for the loss of manufacturing jobs north of the border and threatened to scrap it, while Democratic Party standard bearer Clinton also pushed for further labor and environment standard changes. Despite the pressure on Mexico’s auto and assembly operations services have been a main pillar of 2 percent GDP growth and would not be as upset by treaty overhaul. Remittance flows have been slowing even with US real estate recovery, but mass illegal migrant deportation would further pare them while swelling joblessness at home as another minimum wage increase is under consideration.

Korea’s won as an export heavy Asian proxy has also been battered, after it was named along with China on the US Treasury’s currency manipulation watch list, with the central bank warned to interfere only with “disorderly” movements. The bellwether Samsung conglomerate is literally under fire for exploding batteries in its smart phone, and lead shipping group Hanjin is barely afloat after state bank rescues. Overseas sales dipped 3 percent in October and growth will be only 0.1 percent this quarter according to estimates. North Korea saber-rattling has been frequent in recent months with ballistic missile tests focusing attention on continental nuclear capability. President Park may have entered lame duck status early amid resignation calls after she admitted to a long personal and professional relationship with a fortunetelling adviser, who may have used influence to secure contracts and tip policy decisions.  She reshuffled the cabinet and offered a public apology accepting an independent inquiry with her popularity at a record low 5 percent. The stimulus budget is on hold, and pledged structural reforms may await her successor in another featured anti-establishment contest.