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Milan stocks down sharply as Trump victory creates uncertainty

by Corrado Poggi

Milan stocks are down sharply in morning trades as investors chose a full flight-to-quality mode after the shocking victory of Donald Trump over Hillary Clinton in the US elections. The FTSE Mib is down more than 2% with banks and exporters suffering heavy losses. The feared plunge that seemed inevitable before market open however has not so far materialized.

In the financial sector, Banca Monte dei Paschi is suffering another rout, losing more than 9% but heavy losses are being registered also at the biggest Italian banks, UniCredit and Intesa Sanpaolo (both down 4%). Also stocks of manufacturers like St Microelectronics (-3%) and luxury groups like Salvatore Ferragamo (-3) are being hit.

The election of Donald Trump carries along a lot of uncertainties as the program put on the table by the Republican candidate calls for measures such as lower taxes, anti-regulation, protectionism and anti-immigration.

“Republicans also have the majority in Congress,” explained UniCredit analyst Harm Bandholz. “In addition to keeping the majority in the House of Representatives, which was never really in doubt, they are also on track to defend a slim majority in the Senate. But even as the Republicans’ sweep has increased the chances for some of Mr. Trump’s policy proposals to become laws, we have to emphasize that Republicans are still shy of the supermajority of 60 seats in the Senate, which means that Democrats can use the filibuster to de facto stop most of the initiatives.”

The tariffs that Trump proposed and the planned deportation of illegal immigrants, argues Bandholz -- are “most likely to send the US economy into a recession before long. But before that, his proposed tax cuts could actually stimulate near-term growth by 0.5pp to 0.75pp.”

The big question, the UniCredit analyst concludes, with regard to all these policy initiatives “is, however, if and in what form Mr. Trump will get them through Congress. In particular, as he has to deal with potential filibusters by Democrats in the Senate. So one of the main issues in the coming weeks will be the uncertainty about how the Trump presidency may look like. And we know that financial markets hate nothing more than uncertainty.”

For the moment, investors are taking a cautious approach and they are buying German Bunds leading to the spread with Italian 10y BTP to rise to 162 points.