The markets can be funny.
Sometimes, you can’t predict what will move the market.
You think the market will move due to one thing, only for it to move due to something else.
But who’d have thought that one man, not a central banker, not a president or prime minister, and not even an influential investor, could move one market so wildly.
But that’s what happened this week. It’s an interesting tale…
No prizes for guessing who we’re talking about. That’s right, Donald Trump.
As for his influence on the market, it may not be as obvious as you think. We’re not talking about influencing real estate prices, or stock market indices or valuations.
Trump’s influence is much bigger than that. He’s having an influence on the fortunes of an entire economy. And not the US either. Instead, it’s Mexico.
A bigger influence than the current president
You’re probably familiar with the story.
If Donald Trump becomes US president, he says he’ll build a wall along the US and Mexican border. The aim is to keep out the tens of thousands of illegal immigrants who flood across the border each year.
Of course, there’s no guarantee Trump will build the wall if he wins. But that’s not important.
Of more importance is the effect Trump’s plan is having on Mexico’s economy, in an unexpected way.
Check out these charts. First, is a chart showing the relative opinion polling of each candidate. The blue line is for Hillary Clinton, the red line is for Donald Trump:
Click to enlarge
The next chart is of the Mexican peso against the US dollar:
Click to enlarge
You can see a clear and relevant correlation. As Donald Trump’s poll numbers have improved (red line in top chart), the value of the Mexican peso has fallen.
In July 2015, one Mexican peso would get you 6.4 US cents. Today, one Mexican peso will get you just 5.1 cents. That’s a fall of 16.3%.
It may not seem such a big deal, but it is. And ironically, it’s helping Mexico in a way that is sure to infuriate Mr Trump.
Best of friends?
Not only is Mr Trump angry about illegal immigrants, he’s angry about Mexico’s cheap labour and the jobs US companies are sending south of the border.
Yet, the market’s reaction to Trump’s plans is making it even more favourable for companies to ‘offshore’ jobs, and making it even cheaper for consumers to buy products from Mexico.
As we say, it’s funny how the market works. The markets see Trump as an enemy of Mexico. But as it turns out, in terms of Mexico’s exports, Mr Trump may turn out to be the best friend Mexico has right now.
That could of course all change in November. We’ll keep our eye on this. It’s all set up for an interesting few weeks.