Flight of the black Swan: what to expect from trump the US economy, Russia and the world

What awaits the us economy?

The victory of billionaire Donald trump in the presidential election in the United States throughout the entire electoral cycle was considered unlikely — yesterday the likelihood of this outcome was estimated below 30%. In December 2015, Bloomberg included the possible presidency of the trump in its list of “black swans” (a term which investors are referred to hardly predictable events with significant consequences). Now, if nothing extraordinary happens, trump will assume the duties of the President in January, and his policies will seriously affect the US economy and around the world.

The economic issues in the fall of 2016 was the main issue that concerns American voters: according to a study by Pew Research Center, 84% of voters have named this cluster “very important”. This is due to the fact that the financial situation of ordinary American voters during the presidency of Barack Obama has not reached pre-crisis level. According to the published in September, according to the U.S. census Bureau (Census Bureau), despite the increase in median household income in 2015 by 5.2% (to $56,52 thousand per year), this figure still has not reached the level of 2007 ($of 57.42 million). About 43 million Americans, according the Census Bureau, live below the poverty line.

In its economic program, trump tried to convince the American voters that their financial situation will improve. The most far-reaching reforms are expected in the tax system. Trump wants to abolish inheritance tax, introduce tax deductions for child care, to reduce the top rate paid by individuals, with a 39.6 to 33% of their income. The reduction of the tax burden awaits all segments of the population — this reduction will be even more important than more income. According to estimates of the organization of the Wealth Factory, which leads Forbes, for people with the lowest income (up to $23 thousand) the amount payable for the year taxes will be reduced on average by 0.9%, while reduction for the richest two percent of the population will amount to 11.5%.

Trump promises to reduce the tax burden for businesses — tax deductions for American companies in it, according to his election program, will be a maximum of 15% of their net profit (the maximum size is now paid by companies in the U.S. tax rate is 35%). Trump believes that this will help the United States compete for tax residency with countries such as Ireland and the UK, where many of the largest American companies are maximizing their profit.

The complex of these measures, according to estimates of the research group Tax Foundation, for 10 years will reduce tax revenues in the amount of $4.4 trillion to $5.9 trillion. Tax cuts will lead to a sharp increase in the U.S. budget deficit, said in a conversation with Reuters, chief market strategist at National Securities Donald Selkin. According to estimates of the organization “Committee for a responsible Federal budget” (Committee for a Responsible Federal Budget), fiscal policy trump would increase the U.S. debt by $5.3 trillion over ten years — this will mean an increase to 105% of GDP, compared with the current 75%. The trump offers not only reduce taxes but also to launch an ambitious program of infrastructure investment of at least $500 billion On this background, it is spring and the promise that economic growth in the United States under his administration will begin to pay the national debt that looks impossible. Among the possible measures to reduce debt may trump in an interview with The Wall Street Journal called a buyback of U.S. Treasury bonds to their maturity.

Another key direction of economic policy trump, according to his election program will be the creation of new jobs. During the years of the Obama administration, in the words of trump, the number of unemployed Americans has increased by 14 million trump calling himself “the best President to create jobs”, I’m sure that the tide will help the fight against illegal immigration (initially, trump promised to deport 11 million people, illegally entered in the United States, although later softened its rhetoric). In addition, additional jobs, hopes trump will appear after the revision of the international trade agreements of the United States, which in turn will lead to import substitution in the us.

The arrival of the trump in the White house, certainly with enthusiasm perceive the representatives of the us extractive industries, particularly the coal industry. The new US President, who denies anthropogenic global climate change, intends to remove unnecessary restrictions on the production of oil, natural gas and coal in the United States. In the summer, during a tour rich in coal and other minerals in North Dakota, trump promised that his administration “will save the coal industry” and other extractive industries. Such proposals elected President put an end to the Obama administration’s proposed Clean Power Plan, which involved the introduction of each state’s rules on emissions.

What awaits the world economy?

“On paper” sensational victory trump carries serious risks for the global economy and international financial markets — at least so warned most analysts. Financial markets have turned on panic mode and the flight to defensive assets. Investors in the bulk expected to win Clinton, and trump is that they don’t know what to expect. The period of uncertainty may last longer than after Brexit, and this means that the shares, commodity futures and other risky assets may be very cheaper. “Foreign markets, especially developing ones, will take the brunt,” — said the chief investment officer BMO Private Bank Jack Ablin (quoted by Reuters).

The rate hike by the fed, which is usually followed by the whole world, is now likely to be postponed. If yesterday the likelihood of a December rate increase was estimated by the market in 82% (based on the so-called index swaps overnight, OIS), today it fell below 50%, according to Bloomberg. The fed could afford to raise rates at the next meeting, if the economy is stable, but uncertainty and high volatility, it is impossible. In addition, trump criticized the fed chair Janet Yellen, and economist at Capital Economics economist Paul Ashworth in September warned investors that Yellen might resign in case of victory trump. Consulting company Eurasia Group believes that trump can replace Yellen after the expiration of its mandate in 2018.

During the election campaign, trump promised to review the existing trade agreements of the United States, including the North American free trade agreement (NAFTA) with Canada and Mexico, and to impose a 45% tariff on all imports from China. Such a policy of trade barriers, if it comes to fruition, would violate U.S. obligations in the world trade organization (WTO) and could trigger large-scale “trade war” with China. “The largest global economic risk from victory trump probably has to do with relations with China and trade issues”, — wrote in his Twitter chief economist at the Economist Intelligence Unit Simon Baptist. Trading partners the United States can respond to the prohibitive duties trump similar measures that “will send the U.S. economy into recession and cost Americans millions of jobs,” economists say the Washington-based Institute for international Economics the Peterson name. In addition, when trump USA is unlikely to ratify the agreement on the TRANS-Pacific partnership (TPP) between 12 countries, writes the Eurasia Group. In this case, the leading role in the establishment of trade rules in the Asia-Pacific region will go to China, experts warn of the Peterson Institute.

If trump fully implements its plans to introduce protective tariffs against Mexican and Chinese goods and deportation of most illegal immigrants, the U.S. economy almost grind to a halt by 2019, as global growth will slow to 2.2% (against normal predicted 2.9%) and was evaluated in September by the British Oxford Economics.

What awaits the Russian economy?

“Russia looks the most obvious beneficiary elected Donald trump President of the United States,” — says chief economist of “Renaissance Capital” Charles Robertson in a note to clients (have), pointing out that Moscow appears to hope for the easing of us sanctions in 2017. Global implications of trump’s victory would benefit Russia agrees strategist at research firm Ecstrat Mostak Emad (Emad Mostaque) because the future administration of trump may cancel the sanctions, “as a gesture of appeasement.”

The prospect of easing sanctions — the main idea of analysts surveyed by Bloomberg. Sanctions may be reduced in the coming months “that will allow Russian companies are freer to Fund the business,” said the London investment Director in the emerging markets Barings Plc Michael levy. “There are real reasons for a positive attitude towards Russian assets — particularly the easing of sanctions, which was absolutely impossible under the presidency of Clinton,” said Joseph Dayan of the London office of BCS.

The index of the Moscow exchange Micex as of 15:55 Moscow time grows by 1.36%, and in leaders of growth — shares of companies which are under U.S. sanctions. Sberbank shares rose 2.5%, VTB — on 1%, “Rosneft” — on 1,4% (these U.S. companies have limited access to Finance), the quotations of “Gazprom” and LUKOIL (under sectoral technological sanctions) rose 3.1% and 0.4%, respectively.

Trump said that if elected President, will consider recognition of Crimea as part of Russia and the lifting of economic sanctions against Russian companies and industries. “I would not be so optimistic about the possible lifting of the sanctions,” says Danske Bank analyst Vladimir miklashevskii. Although the Congress remained under Republican control, many colleagues of trump’s in the party refused to support it before the election. In addition, practice shows that sanctions the service of the U.S. Treasury OFAC can not be rolled back quickly.

Although the victory trump has hit the prices of risky assets, including oil, Russia “relatively adapted to low oil prices at the corporate level”, the company’s oil and gas sector are underestimated, it indicates Mostak from Ecstrat. In the geopolitical context of a trump presidency would mean more isolationism and less American intervention in foreign Affairs that would weaken NATO and strengthen the relative position of Russia in Europe, he said. “It would compel the Eurozone to detente with Russia and is likely to lead to the lifting of European sanctions, because US support is no longer guaranteed,” he writes.

EMEA “the ruble is more likely to benefit from the potential acquiescing to Putin’s regime on the part of trump, and the reinstallation of the regional balance of power in favor of Russia,” wrote Societe Generale analysts (quoted by Bloomberg).

Trump promised to radically reconsider the trade policy of the United States — in particular, to introduce prohibitive duties on imports from Mexico and China. But he never said that about Russia. However, Russia is far not the largest trading partner of the United States, and in 2015, bilateral trade fell by 28%, to $21 billion (data from FCS). The US is a net exporter, putting it in Russia last year goods worth $11.5 billion.