Markets around the world tumbled this morning as a Trump victory in the US Presidential Elections was interpreted as increasing the risk of trade wars and stoking political uncertainty. Japan’s Nikkei dropped by over 5% and gold shot up 5%, that safe haven in troubled times. One market stood apart. Russia. The immediate reaction in Moscow was to mark stocks up by 1% with metals taking the lead in anticipation of a more benign environment for exports. The Russian sovereign bond curve tightened 7-9 basis points.
This immediate positive reaction is not difficult to fathom. Russia has been dogged by sanctions and the rhetoric from the Clinton campaign was greeted with foreboding. Recalling that the Democratic nominee accused the Kremlin of seeking to manipulate the election result, proposed introducing a no-fly zone in Syria and raised the possibility of extending sanctions, it is easy to see why the market is relieved that Clinton lost and Trump won.
President Putin was quick to congratulate President Elect Trump and hoped there would be a “constructive dialogue” between the two countries. And there may be grounds for optimism. Trump has defended Russia’s foreign policy and suggested that the two countries could work together on fighting terror in the Middle East. His instincts appear to want to find ways to co-operate rather than confront.
A retired and well connected Russia Ambassador said at a recent forum hosted by Hudson Sandler in London that there was a desire in Washington and London to find a way to de-escalate tension with Russia. A deal was being discreetly discussed that would have three pillars; NATO would agree not to move east for ten years, provisions would be made to enshrine the protection of Russian minorities in eastern Ukraine from alleged discrimination and the Crimean annexation would be independently ‘validated’ short of a second ‘vote’. Germany and France were the key players holding this back supported by an indifferent White House. Perhaps with Trump a deal can now take shape.
Of course, the longer term consequences of a Trump victory could involve major headwinds for the Russian economy. His campaign has been built around “bringing jobs back” to the rust belt. So tariffs are unlikely to be lightened against Russian imports and possibly escalated. A more protectionist approach to China might also impact another key Russian export market. Trump is committed to hydrocarbon energy sources and this will have a dampening impact on the oil price as he looks at ways to further boost US production. Indeed, the oil price dropped over 3% this morning.
The Trump-Putin relationship will be fascinating to watch, particularly given all the insults hurled at it in recent months. But there is now an opportunity to reset relations which could be an early indication of a more engaged US on the international stage after eight years of proto-isolationism from Barack Obama.