The rancour of the US election campaigned appeared to evaporate after conciliatory concession and acceptance speeches from the candidates. Markets turned from predicting economic disaster to optimism about potential for economic reform. In one of the most extraordinary trading sessions ever, Dow futures went from a more than 800 point deficit to close 247 ticks higher.
The stunning turn in sentiment suggests there is now a consensus building that much of the policy announced during the campaign was a sales pitch rather than a commitment to act. Investors ignored the potential for damage to international trade and growth prospects and focussed on Republican control of both houses of Congress as well as the White House. This offers the prospect of reform that could stimulate the US economy. However, last night’s action may be as good as it gets for markets for some time. Policy uncertainty and populist agendas rarely lead to sustainable economic growth.
Australian shares are set to soar. Futures are indicating index gains better than 3% after yesterday’s rout. US exposed stocks may feature, and resource stocks will find support after rallies in industrial commodities. Yesterday’s selling was top down, meaning another day of futures leading physical shares.