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How a Trump 'threat to world order' could play out for stocks
MARKETWATCH 10:28 AM ET 1/23/2017
After President Donald Trump's inaugural address, with its "America first" emphasis, some believe the global trade paradigm has most likely been altered, and at least one economist says investors should brace for the potential fallout.

According to Erik Nielsen, group chief economist at UniCredit Research, Trump's trading policy represents a zero-sum game with only one winner and a loser, which will make it difficult for global trade agreements to be negotiated in earnest.

As a result of Trump's stance, Nielsen said he sees two trade scenarios playing out for the Trump administration.

Under the first, the leader and his administration recognize deep divisions in the country and aim for "relatively traditional policies," he said. In the second scenario, Trump "doubles down and plays to 'his audience' following through with the bulk of his hard-line policies which have been described by some as protectionist and nationalistic. Nielsen say he doesn't see this as the scenario most likely to play out but warned that under this environment resides the greatest threat to the flow of capital and international trade.

Nielsen has been critical of Trump in the past and described Friday's inaugural address as "possibly the most divisive and aggressive inauguration speech in history."

Opinion:10 popular stocks at risk from Trump's 'America first' inauguration speech (http://www.marketwatch.com/story/ 10-popular-stocks-at-risk-from-trumps-america-first-inauguration-speech-2017-01-20)

The UniCredit economists said if Trump's more aggressive path is taken, investors should expect market volatility to accelerate as international capital heads for assets considered havens.

Read: Nervous about the U.S. bull market under Trump? 'Bond King' Gundlach says look east (http:// www.marketwatch.com/story/nervous-about-the-us-bull-market-under-trump-the-bond-king-says-to-look-east-2017-01-23)

"The guiding principle for investments will then rest on three pillars: (1) Safe havens, but defined in a world where the U.S. is the key source of concern, which probably means gold and bunds more than U.S. treasuries; (2) A greater share of capital will likely stay close to where it's created, which means that you'll want to pick countries with current account surpluses, including the Eurozone, and (3) you want to stay away from Trump's wars, i.e. primarily U.S., Chinese and Mexican assets," said Nielsen.

So far, the market has been skittish of U.S. rule under the real estate billionaire. Last week, Bank of America Merrill Lynch reported that investors pulled $2.5 billion out of U.S. equities in the latest week, with outflows logged in four of the past five weeks. Precious metals, meanwhile, saw the first inflows in 10 weeks of $1.3 billion, which was the largest in five months. Investors tend to flock to precious metals like gold and silver in times of uncertainty and shy from assets perceived as risky like stocks.

Read: All investment decisions must be re-evaluated as the Trump era dawns (http://www.marketwatch.com/story/stock- market-braces-for-sea-change-as-donald-trump-takes-charge-2017-01-21)

On Monday, U.S. stocks traded lower (http://www.marketwatch.com/story/wall-street-stocks-set-to-slip-as-trump-keeps- investors-on-the-back-foot-2017-01-23), while traditional havens such as the Japanese yen and gold prices were moving firmly higher. Meanwhile, the German benchmark 10-year Treasury note, known as the bund, was trading at 0.40%.

Mexico's peso and the China's yuan , currencies that have been the most sensitive to Trump's trade posture (http:// www.marketwatch.com/story/these-are-the-currencies-most-sensitive-to-a-trump-presidency-2017-01-20), were both strengthening against the buck. Trump said Sunday that he would go ahead with plans to renegotiate the North American Free Trade Agreement (http://www.wsj.com/articles/president-donald-trump-makes-revised-trade-deals-an-early-priority- 1485131856?mod=mktw), or NAFTA, which binds the U.S. to Canada and Mexico.

-Barbara Kollmeyer; 415-439-6400; [e-mail]


(END) Dow Jones Newswires
01-23-171028ET
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