The drinks industry will have to wait and see whether Donald Trump as President is better or worse than expected.
The drama that unfolded over the first few hours of polling stations closing across the United States on the night of the presidential election was as big a thriller as you are ever going to pay to see down the local multiplex.
Whether what you were watching was the scariest horror film of all time, or the grandest, widescreen version of the classic uplifting story of the American Dream ever made, will come down to your personal politics.
But if your day job is making, or trying to buy or sell wine and spirits around the world then you have just paid your money to become part of the world’s biggest roller coaster, adventure ride. Remember Indiana Jones picking up his treasure at the start of Raiders of the Lost Ark as all the walls around him start crumbling and falling down around him?
We might be in need of Indiana Jones in the coming months…
Well, we are all going to find out what it is like trying to find our own path to safety without being sliced in to a thousand pieces along the way.
In some ways it is quick flash back to June 24 and the immediate fallout of what occurred on the world’s financial and currency markets with the UK’s decision to leave the European Union. The ramifications of which are still being played out. Particularly for those trading with the UK and dealing with the consequences of its weakened sterling and the knock on effect that has had on other major currency values around the world.
But as Trump says himself. Him becoming the President of the United States is no Brexit. It is Brexit Plus, Plus, Plus.
As we have seen only too well this summer, the one economic factor the financial markets don’t like is uncertainty. Barclays likened the Brexit vote as being the equivalent of “uncorking a genie” from the world’s financial bottle and making “uncertainty the new normal’.
With Trump packing his bags for the White House those uncertainty levels have been ratcheted up by a factor of 10.
Even in the hours when the votes were being counted in the US elections the Mexican peso dropped to its lowest level ever against the US dollar in fear of what Trump said he would do with trade agreements south of the border.
All up in the air
It is clearly too early to tell what the on-going impact is going to be of the reality of Donal Trump as the President of the United States.
But it is the equivalent of putting the US dollar, the most strategically and economically important currency in the world, on a financial rollercoaster and watch it weave up and down on the currency markets over the coming months.
Which makes all those trying to make long term drink buying decisions, based on the value of the dollar, near on impossible.
Take South America. It is not just the Mexicans that will be looking nervously at what Trump does next. The rate of the respective Brazilian, Chilean and Argentinian currencies are all tied to the fate of the US dollar, not only in trading with North America, but with the rest of the world.
The political ramifications of the shock US election win are already being trumpeted across Europe. Brexit is not just a UK affair. Its influence is likely to be a major factor in how a number of major European countries, facing elections in the next couple of years, play out. Putting further political and economic upheaval firmly on the agenda.
The odds, for example, of the far right National Front candidate Marine Le Pen winning next year’s French election have shortened dramatically in the wake of Trump’s win. Italy’s president, Matteo Renzi, who has been lauded for his reformist policies that are putting the Italian economy on a healthier footing, could well be ousted in next month’s constitutional referendum.
All of which has seen some financial analysts predict a “dire” long term future for the euro, and the eurozone in general, as is comes under severe pressure next year, exacerbated by the on-going fallout from the Brexit negotiations.
Again bad news for those who pin their forward planning and wine and spirit buying decisions on the value of the euro.
Trump’s arrival in the White House is only going to raise blood pressures over in Asia where his comments on restricting trade to China had already caused major concerns across the region and are likely to have an impact in the local financial markets in the coming months.
This could also be good and bad news for Australian wine producers. On the one hand it could see Asian financial markets drop the US dollar in favour of the Australian dollar. Strengthening its value on global markets. But then if the Australian dollar gets too strong, it becomes less attractive a country to work with.
Then there is the issue of trade deals and tariffs. Trump has made quite clear during his election campaign that he will be more a protectionist President than one searching the world for the next free trade deal.
Will the real Trump stand up?
What Trump does in the White House may be different to what he said on the election trail
Moody’s, the ratings agency has issued a note that it expects a Trump presidency “to take and anti-globalisation stance”. “There will be no trade deals, and some countries may be labelled as currency manipulators, resulting in some form of sanction or higher tariffs,” is how Moody’s analyst, Mark Zandi puts it.
All of the above makes you want to open a bottle of wine never mind try and sell it. But on a more positive note the one uniting factor everyone working in the international wine trade has, is that we are all in this together.
Yes, the world currency markets might be in your favour today, but that does not mean they are going to be in six months or a year’s time.
It makes forward buying of currencies even more difficult when it is hard to see where the real winners and losers are going to be.
Which is why it is essential buyers and sellers of wine look to find trading partnerships that can work in the long as well as short term in these volatile times. Contracts that are both profitable and sustainable for both sides.
The next few months will prove who your real trade partners are.
- This is an adapted article that was first published on Vinex, the global bulk wine trading platform.
