The weekly bottom line

TD Economics

HIGHLIGHTS OF THE WEEK

United States

  • Donald Trump won a surprising victory in the U.S. election, making significant gains in traditionally Democratic states to take the majority of Electoral College votes. Less than 0.2% separated the candidate’s tallies in the popular vote, revealing a deeply divided America.
  • Equity market reaction to the Trump victory was swift but short-lived. The bond market reaction has proved more lasting, as expectations of fiscal expansion have led to a sizeable jump in inflation expectations.
  • With Congress also in Republican hands, we are likely to see significant policy moves on a variety of fronts, including repealing the Affordable Care Act, tax cuts, and reducing government regulations. However, it remains to be seen how much spending restraint in other areas Republicans will insist on to fund tax cuts or infrastructure spending.

Canada

  • Canadian markets had a mixed reaction to the outcome of the U.S. presidential election. The S&P/TSX and bond yields were up, while the loonie lost some ground.
  • For Canada, a Trump victory has generated concerns, particularly surrounding his intent to renegotiate NAFTA. However, we suspect that some kind of free trade deal will remain in place.
  • Perhaps a positive for Canada is that fact that Trump has said he would approve the Keystone XL pipeline, which would help to get more oil out of Alberta and support future investment in the industry.

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