Uncertainty roils markets ahead of US vote

The US economy could tip into recession and Wall Street slide if Trump wins the election, according to Citi analysts.

Republican presidential candidate Donald Trump speaks during a campaign rally, Sunday, Nov. 6, 2016, in Sioux City, Iowa. (AP Photo/ Evan Vucci)

The US economy could tip into recession and US stocks could drop up to 5 per cent if Republican presidential hopeful Donald Trump wins the upcoming election, according to new research from Citi analysts.

By contrast, Citi says a win for Democratic nominee Hillary Clinton would likely mean the US economy would continue to grow at a moderate pace or slightly better, with little market reaction.

US stocks fell on Friday for the ninth straight session, marking their longest stretch of declines in nearly 36 years as uncertainty over the election outcome outweighed solid, although not stunning, employment data.

Despite investors already starting to price in the risk of a surprise victory for Mr Trump, the bank expects further selling could be ahead.

“If Donald Trump were to win, that outcome would have been unexpected and thereby may cause a jump in the equity risk premium with negative price-equity multiple repercussions,” Citi said in a research note.

“We think a Trump victory could spark a 3 to 5 per cent setback in the S&P500 as people pause to assess the impact.”

By contrast, the bank “does not expect a Clinton victory to be especially market-sensitive”.

Ahead of today’s fresh revelation that the FBI will not be seeking to lay charges against Hillary Clinton in relation to the investigation stemming from her use of a private email server while in government, Citi was tipping a 75 per cent probability of a Clinton presidency, and a “non-negligible” 25 per cent probability of a Trump presidency.

Mr Trump has advocated immigration restrictions, higher tariffs for Chinese imports and renegotiations of existing trade agreements, while Mrs Clinton’s economic policies include increased spending for job creation, higher taxes on the wealthy and smaller-scale revisions to trade agreements, the bank noted.

“From an economic point of view, a Clinton win most likely means continued middling US growth or a slight lift.

“A Trump win risks slower growth or recession if trade is restricted and fiscal expansion plans curtailed.

“Uncertainty alone could hit the economy. Global growth will also be impacted if uncertainty rises, US growth is hit and US financial conditions tighten.”

For the US dollar, the bank flagged an uncertain post-election outlook.

“If Clinton wins then [we] would expect the dollar to resume its downwards drift seen earlier this year,” Citi said.

“If Trump wins then the outlook is less clear. Increased uncertainty about the US outlook might trigger some capital flight, but a wholesale meltdown in global risk assets traditionally helps the US dollar.

“[We] are more convinced that a Trump victory would boost the traditional safe havens (Yen, Swiss franc) and hit emerging market currencies.”

Earlier, Credit Suisse tipped a slump of up to 15 per cent for US stocks if Mr Trump wins the election and is able to fully implement his protectionist trade policies.

Research from UBS declined to put a figure on the possible election impact, saying that a contested result would be a “very strong negative” for stocks.

Westpac has said a victory for Mr Trump would have larger global consequences than Britain’s decision to leave the European Union.