The last time the world was faced with a major democracy throwing off convention in favour of drastic change and anti-globalisation was the UK’s EU referendum which resulted in a close victory for the ‘Leave’ campaign. Today is the US election, and global markets could be in store for another period of serious uncertainty.
Trump’s US election campaign has many similarities with the ‘Leave’ campaign led by Boris Johnson, a man almost as unconventional and some would say uncouth as Trump, and Nigel Farage, another right wing businessman trying his hand at politics. In fact, Trump has even brought in Farage to speak to his supporters, and the UKIP (UK Independence Party) leader made direct comparisons between the two campaigns. A key difference between the referendum and the US election is that Farage is not in charge of the world’s largest military, but Trump may be soon.
Defying the Polls
In the lead up to the Brexit vote the Remain campaign seemed firmly in charge, leading the polls by seven points on the night of the referendum. However there were early signs of trouble. Newcastle, in the North East of England and home to predominantly white working class people in a region hurt by deindustrialisation, voted to remain – but just barely. Polls had predicted a strong Remain majority in Newcastle, but instead Remain barely limped over the line. If early in the night some traditionally blue states start looking purple, then it could be a bad sign for Clinton.
Soon results across the UK began defying the pollsters and by the time all the votes were counted England had elected to leave the EU.
Many attributed the polls’ inaccuracy to ‘shy’ voters. After all who would admit to voting Leave when public perception associated the campaign with racism and xenophobia. Sound familiar?
Trump may also benefit from a boost from ‘shy’ voters who are unwilling to admit to pollsters that they are voting for such a controversial figure. Remain’s apparent dominance in the polls bred complacency among Remain voters who believed their side had already won. Meanwhile some Leave voters saw the referendum as a way of voicing their displeasure with the status quo, thinking their ‘protest vote’ wouldn’t sway the results due to Remain’s huge margin in the polls – they were wrong and many are suffering now from ‘Bregret’. The same polls only encouraged strong supporters of Leave to GOTV (get out the vote), in a frantic attempt to save their campaign. Remain and Clinton voters were more apathetic and less mobilized than their opponents.
Already there are some worrying signs for Clinton: early voting suggests that African American turnout is down. Although Trump is doing better than some might expect among African American voters (some polls indicate he is surpassing Romney’s admittedly paltry share of the black vote last election cycle), by and large African Americans have voted solidly Democrat since the civil rights era. Worryingly also for Clinton is the fact that African American voters are a large demographic in many key states, and their apathy towards both candidates will benefit Trump.
Uncertainty in the Market
In the immediate aftermath of the Brexit vote the GBP fell 10% overnight, $2 trillion worth of value was wiped off the world’s stock markets, and the FTSE 100 (Britain’s main stock market index) dropped 8%. Fortunately for traders, less than a week later the stock markets recovered, but the pound did not. Although the GBP did bounce back slightly after hitting a 30 year low, the currency remains at levels not seen since the 1980s.
Since the Brexit vote the economic data coming out of Britain has surpassed expectations, but many economists have stuck by their assertions that long term the referendum will still likely prove detrimental to Britain.
The vast majority of polls predict that Clinton will win the US election, but the polls were wrong in the lead up to Brexit causing global markets and the GBP to crash. If Trump pulls off an unexpected victory expect a similar reaction from the USD and global markets.
In times of uncertainty investors traditionally stock up on USD, if Trump wins they will be looking for alternatives. This (along with a relative rise against a depleted pound) could boost the other major currencies including the GBP and gold prices – the historic safe haven in times of uncertainty. If Clinton wins then the reverse will likely be true, the majors and gold will fall relative to the USD.
While Brexit is continuing to drag on (a recent court ruling said that Parliament must now vote to leave) the US election should have a definite end. However, if it goes down to the wire, and requires a recount or Supreme Court decision then expect market volatility.
Brexit’s two primary lessons for us are: 1) Ignore the polls, and 2) hope for a quick and conclusive end.
Stay informed. Stay Current.