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The Trump effect on Canada

It's been a week since Donald Trump was elected President of the U.S. and so far, we have seen markets react in typical jittery fashion. On the night of the election the market started to fall when it was understood that Trump would be the next President, but the next day there was a rebound.

Analysts and economies worldwide are trying to predict their economic futures under President Trump. There are so many "could happen" scenarios that it's going to be difficult to know how to plan so here's what's happened in one week.

Bonds
Bond markets reacted quickly. Trump's plan is to stimulate the U.S. economy by increasing infrastructure spending, thereby increasing the debt while at the same time cutting taxes has financial markets worried. Bond prices lost $1T as reported on CBC News, which is causing a rise in yields. Already, in Canada, we are seeing fixed rates increasing.
 
Stocks
On election night, stock markets around the world dropped but rallied the next day. This is not surprising since Trump talked about cutting taxes and reducing regulations, making the country more business-friendly. There is also talk that the Fed's interest rate increase, slated for December 15, may be its last for awhile or may not happen at all, which will also impact the bond market. So far, the anticipated volatility in the market has not happened.  A new Gallup poll shows that Americans have the most confidence in the U.S. economy in a year and a half.

The Loonie
While the Loonie lost some ground last week, crude oil prices have rallied on speculation that OPEC members will reach a deal to cap production soon, which has the loonie climbing higher. It's hard to say what will happen but it's likely that the loonie will continue to fluctuate as the US economy unfolds under Trump.

Interest rates
We have already seen a few of the Big Banks raise their fixed rates. Rising interest rates could have the same effect on the housing market as it has on bonds, which means that higher rates could have the effect of lowering the value of the housing market.

What next?

Recreational property
Americans are the biggest foreign buyers of Canadian recreational property. Part of the reason is the higher value of the US dollar. However, if the US dollar dips in value due to lack of confidence in Trump and the economy there, it will impact prices and sales.  And it might last a long time. The Nova Scotia and New Brunswick recreational market dropped dramatically -  as much as 60% -- after the 2008 Global Financial Crisis. Some of these markets have yet to fully recover. So far, consumer confidence is high in the US.

The Canadian economy
Trumps talk about trade does not bode well for Canadian exports. His plan get rid of NAFTA, or now re-negotiate it is troubling. However, in a recent speech, President Obama said that taking over the office of the Presidency is a reality check. Hopefully, Trump rethinks parts of his NAFTA policies.  Also, Trumps promise to deport 11 million "illegal" workers could impact the labour market there. The country is at almost full employment and by removing many workers from the workforce could stop economic growth. That would not bode well for the Canadian economy.

If there is an upside, it may be in the real estate market, which might benefit from the Americans immigrating to Canada. It has already been happening. In the last 10 or 15 years, Canada's brand has improved significantly and the country is already attracting high-tech talent.

As with everything else about Trump's run for the presidency, nothing is predictable. Already Trump is backtracking on some of his most controversial promises. It could be, that once in office, when he realizes the enormity of his position and the decisions he must make, and if he surrounds himself with the best advisers, that he will be able to unite a divided country and continue to create an economy that grows. That would be beneficial to Canada. 


The Mortgage Group Canada (www.mortgagegrp.com)
Thursday, November 17, 2016

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