Trump's effect on UK special relationship

But with Brexit talk, protectionism and a new President being sworn into office in January next year, what sort of 'relationship' will the UK have in future?

Political questions aside, there are important financial relationships, such as currency movements, merger and acquisition activity, US companies listed and operating in London (and UK companies listed and operating in America).

Not to mention the ripple effects caused across the UK financial system through correlation to events in the US, as already evidenced when President-Elect Donald Trump's speech caused UK gilt prices to increase and defined benefit pension transfer values to fall. 

In his speech, the full text of which can be found on our sister newspaper's website FT.com by clicking here, Mr Trump said: "We have a great economic plan. We will double our growth and have the strongest economy anywhere in the world.

"At the same time, we will get along with all other nations willing to get along with us. We will be. We’ll have great relationships. We expect to have great, great relationships."

Analysts and commentators agree Mr Trump's presidency will seemingly be good for risk assets globally and less so for fixed income.

However, how this will affect the UK markets is less certain, although there have been some predictions based on his current policies.

Case for UK equities

According to John Vail, chief global strategies for Nikko Asset Management, although Mr Trump's policies appear to be "pro-business, especially regarding taxes and less regulation", it is unlikely that risk markets will "respond well to his election for a while."

Indeed, the FTSE 100 had initially opened 2 per cent down on 9 November as the news broke that Mr Trump was heading for the White House, but recovered by the end of the day, continuing its general upward trend.

A week after the US election result was announced, the FTSE 100 was trading at 6,749.72, slightly down (0.67 per cent) on its opening but still 9.82 per cent up year on year.

Laith Khalaf, senior analyst for Hargreaves Lansdown, comments: "Initial market reaction was a short intake of breath, followed by a shrug.

"The reaction of the UK stock market was much more muted than in the immediate aftermath of the Brexit vote."

The reaction of the UK stock market was much more muted than in the immediate aftermath of the Brexit vote.Laith Khalaf

Sectors which look to benefit from a Trump presidency include mining companies, which have already seen strong rises on the FTSE, as well as pharmaceutical companies. 

Mr Khalaf claims these increases were down to the rising prices of commodities and the relief of pharmaceutical analysts now that proposed Democrat attacks on drug pricing were "no longer in the ring".

According to Mr Khalaf, equity income looks to be a beneficiary of Mr Trump taking charge as investors in traditional dividend-payers such as AstraZeneca and GlaxoSmithKline could be in for some strong payouts in the future.

Top online share buys by Hargreaves Lansdown's Vantage clients on the day after the election might indicate the direction of travel for UK investors. 

These were, in order of volume bought: 

• Lloyds Banking Group
• Glencore
• Randgold Resources
• BooHoo.com ordinary
• ETFs Metal Securities
• Sirius Minerals
• Legal & General Group
• GlaxoSmithKline
• Marks and Spencer Group
• Scottish Mortgage IT

Colin Beveridge, chief investment officer for True Potential Investments, says UK investors have so far been sanguine about their stock market investments.

"Their reaction has been measured and it proves that uncertainty can be seen as an opportunity and not a threat", Mr Beveridge says.

Other equities which might do well are those in defence and defence technology, as one of Mr Trump's proposals is to increase defence spending by $55bn to $60bn a year - a 10 per cent increase - and force other North Atlantic Treaty Organisation (Nato) members to do the same by "picking up their share".

Case for UK bonds

The effects of Mr Trump's pro-growth policies have already been evidenced when it comes to sovereign debt.

The policy pledges made by Mr Trump earlier this month helped to revive inflation expectations globally and in the UK - although October's CPI figure gave a surprise dip of 0.9 per cent, down from 1 per cent in September.

These inflation expectations helped to drive up bond yields, as typically, higher inflation tends to depress bond prices, lifting yields in the process.

Duration has a part to play as longer-dated bonds are typically more sensitive to inflation expectations. 

This is why the 10-year gilt rate, which is effectively the benchmark rate the UK government has to pay in order to borrow from the capital markets, has seen significant swings since Mr Trump's speech to the market.

The UK gilt rate fell drastically after the nation voted for Brexit, and hit a low in August, at 0.506 per cent. This was partly caused by investors flocking to the relative safety of UK sovereign debt in the light of global uncertainty, and by Mark Carney, governor of the Bank of England, announcing the first base rate cut since March 2009.

However, gilt yields hit 1.49 per cent on 14 November after Mr Trump's speech raised inflation expectations in the US and in the UK.

This has been a double-edged sword: on the one hand, investors in gilts are receiving for the first time in many months a higher-than-inflation yield.

On the other, this will put up Britain's borrowing costs and will have a negative effect on the public purse.

According to the Office for Budget Responsibility, each 1 percentage point increase in gilt yields would add another £3bn to the deficit by 2019 to 2020.

Defined benefit (DB) pension schemes have been beneficiaries of rising bond rates and may continue to do so if Mr Trump's policies are put into effect with little push-back from the Senate or Congress.

According to analysis by Hymans Robertson's funding position monitor, 3DAnalytics, DB funding levels rose £35bn on the back of Mr Trump's policy pledges.

The total UK DB deficit fell from a record high of more than £1trn in August to £825bn as at 16 November.

Calum Cooper, partner at Hymans Robertson, says the deficit reduction "has been driven by rising bond yields in part due to revived inflation expectations due to President-elect Donald Trump's policy pledges".

These growth-centric pledges, together with what Mr Cooper refers to as "Trumpflation" may also spell the end for forced bond and inflation manipulation by central bankers. 

Richard Buxton, head of UK equities for Old Mutual Global Investors, explains: "This is the high watermark of central bankers. From here, they will decline from being financial gods to being officials, public servants of the greater good.

This is the high watermark of central bankers. From here, they will decline from being financial gods to being officials.Richard Buxton

"Negative interest rates, negative bond yields, central bank purchases of corporate bonds at yields well below those of the same company's equity yield - this has been the Alice in Wonderland central banking.

"A return to positive interest rates, positive yields, an incentive for savers to save and to creating a real cost of capital for entrepreneurs will all be hugely positive consequences of this electoral revolution."

Other UK assets

Sterling received a much-needed boost from Mr Trump's victory, after a damaging 2016 in which the pound's value dropped to a 168-year low, a fall exacerbated by the European Union referendum, talk of Hard Brexit and an uncertain political environment.

On the day the US election result was announced, the pound was trading at 1.2418 against the US dollar. By 16 November it was up slightly at 1.2439

Property has also received an unexpected filip.

There had been concerns says Jeremy Leaf, London estate agent and former chairman of the Royal Institution of Chartered Surveyors, that the Trump Presidency would "inevitably have an impact on confidence".

He says: "We are likely to see a further period of uncertainty because he will not be able to take any decisive action until he assumes power in mid-January. 

"That is a concern - a further period of limbo after until action is taken and in that time markets are likely to remain in uncertain territory. This is particularly problematic as it comes on the back of 18 months of limbo when the election result had been too close to call."

However, not all property specialists are worried about the effect a Republican President may have on the UK housing market.

Russell Quirk, chief executive of eMoov, comments: "The results of the Presidential election could further an apparent resurgence in the prime central London market, as Americans may begin looking across the pond to invest in the Capital’s top end market."

simoney.kyriakou@ft.com