US: Impact of a Trump victory on Europe – Rabobank

Philip Marey, Senior US Strategist at Rabobank, expects markets to trade in a risk-off tone in the aftermath of a Trump victory where we may see renewed speculation that the ECB will have to re-think it's (deposit) rate policy if the euro strengthens further.

Key Quotes

“Eonia forwards may revisit their former lows. Risk premiums are likely to rise and equity markets to decline on the back of greater uncertainty.

The most salient impact of a Trump victory is that it could further embolden anti-establishment parties in some EU Member States as it underlines running a strong-worded campaign which plays into people's sentiments, can be effective. Many European politicians have expressed their concerns about a Trump leadership and the biggest risk in the short-term is that relations between the US and Europe cool even further. Hopes that TTIP will see the light of day in the foreseeable future are likely to be quashed. With an elevated risk of a trade war erupting at some point we expect European businesses to stay cautious with new investment projects, thus holding back the economic recovery.

In the medium term, pressure on European governments to respond to the Trump tax cuts with a European version of budgetary leniency is likely to build.”