Normally I say 'Good Morning' on this line, but it's hard to write that in a world waking up to a President Donald J. Trump in tandem with a Republican-controlled House of Representatives and Senate.
A man who has threatened to tear up the trade and defence agreements that underpinned globalisation and peace between the great powers for the last 30 years is now in charge of the world's largest economy and its most powerful military.
Powered by a stunning voter backlash against that globalisation of trade, capital and people that all the pundits and pollsters missed, he has the political and legislative power to turn back the tides of goods and services and migrants that have powered the global economy and underpinned asset values for decades. He may yet fail to carry out these threats and promises, but it won't be because he and his supporters don't have their hands on the levers of powers.
The shock and awe around his victory gives him enormous political capital in Washington and one of the new Congress' first acts will be to appoint a Donald Trump nominee to tip the balance in favour of conservatism on the US Supreme Court.
The usual checks on Presidential power -- control of the Congress and the Supreme Court -- will be looser than most had thought before the unthinkable happened. Trump began as President Elect with an apparently gracious and unifying speech that said the nation owed Hillary Clinton "a major debt of gratitude for her service to our country," and that he would be a President for Americans of "all races, religions, backgrounds, and beliefs." But this is a man who just days ago threatened to put her in jail and campaigned to forcibly deport millions of illegal immigrants in his first months in office.
Canada's immigration website crashed in the early hours of the morning after it was swamped by Americans looking to leave.
So what next?
Financial markets were shocked and immediately priced in the potential for higher inflation in America and a hit to trade between America and Mexico at the very least, although an immediate 800 point fall in US stock futures was unwound by this morning. The Mexican peso fell as much as 11%, its biggest devaluation since the Tequila crisis of 1994 (if you remember it you weren't there.)
The most relevant move for New Zealand was in the US 10 year Treasury yield, which rose 21 basis points to an 11-month high of 2.07% on fears that a Trump infrastructure spending spree allied to tax cuts would generate inflation and worsen the creditworthiness of US Government debt. Trump suggested during the election campaign he would renegotiate US debt (ie default on US Treasuries). Most think a default on US Treasuries is extremely unlikely and the financial equivalent of armageddon. But everyone said the same about the prospects for Trump's election.
Trump's most substantive statement in his speech was around the need for Government spending on infrastructure.
"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We're going to rebuild our infrastructure, which will become, by the way, second to none, and we will put millions of our people to work as we rebuild it," he said.
Economists have forecast Trump's plans for tax cuts and massive infrastructure spending would dramatically increase US budget deficits, and therefore increase US interest rates, which form the basis for interest rates globally.
This rise in long term interest rates and uncertainties about inflation and economic growth (most financial market economists increased their expectations about a US recession) have already flowed through into longer term retail interest rates here. ASB and BNZ have both increased their long term mortgage rates in the last week, while Westpac and ANZ have suggested banks will be reluctant to lower interest rates for depositors or borrowers much (or any further.)
What might it mean for us?
Aside from the immediate and ephemeral financial market moves, Trump's election means the TPP is officially dead and buried. Even after this unthinkable result, the suggestion of a Republican-dominated House of Representatives passing the TPP against Trump's wishes during the lame duck session is even more unthinkable.
Much will depend in the months and years to come on what Trump actually does with his threats of trade barriers and immigration controls and new defence arrangements. The key relationship to watch for New Zealand is the one between America and China, and what happens in the seas and skies around and over China.
Even Trump's suggestions of a 45% tariff on Chinese imports will have a deadening effect on investment and spending plans in China. Rising US and global interest rates will further stress an already dangerous pile of corporate and shadow bank debt in China.
The biggest immediate risk for New Zealand from a Trump victory is some sort of slow-down or recession in China that spills over immediately into lower demand for tourism, primary exports and international education. The secondary effects through Australia of some sort of internal debt crisis or slowdown inside China would also be substantial. The combined effects would be more than unpleasant.
It's worth remembering that China's growth was powered by its export expansion into America. Any reversal of that will be disruptive at best.
In a wider sense, Trump's victory is set to destabilise a 30 year trend towards freer movement of goods, services, capital and people that underpins the value of assets everywhere and the incomes of many. It represents a revolt by those in the low to middle income groups of America and Europe who did not benefit from the effects of globalisation as much as those in emerging economies or the very rich in both emerging and developed economies.
In a political sense, it destroys the consensus around the free movement of trade, people and capital. The reverberations will be felt in elections over the next year in Italy (December), France (May), Germany (October) and, of course, New Zealand (probably September 23).
Winston Peters was in full told-you-so mode last night. See quote below.
RBNZ cuts one last time
The Reserve Bank of New Zealand cut the Official Cash Rate by 25 basis points to 1.75% this morning as universally expected and has forecast no more cuts because it says monetary policy is now relaxed enough for inflation to rise back into the middle of the bank's 1-3% target band.
Governor Graeme Wheeler said significant surplus capacity existed across the global economy despite improved economic indicators in some countries and that global inflation remained weak even though commodity prices had come off their lows.
"Political uncertainty remains heightened and market volatility is elevated. Weak global conditions and low interest rates relative to New Zealand are keeping upward pressure on the New Zealand dollar exchange rate," Wheeler said.
"The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed," he said.
The New Zealand dollar jumped almost a cent to 73.4 USc after the statement.
Domestic GDP growth was being supported by strong population growth, construction activity, tourism, and accommodative monetary policy, he said.
"Recent dairy auctions have been positive, but uncertainty remains around future outcomes. High net immigration is supporting growth in labour supply and limiting wage pressure."
Wheeler said house price inflation remained excessive and was posing concerns for financial stability.
"Although house price inflation has moderated in Auckland, it is uncertain whether this will be sustained given the continuing imbalance between supply and demand," he said.
Wheeler said headline CPI inflation continued to be held below the target range by ongoing negative tradables inflation.
"Annual CPI inflation was weak in the September quarter, in part due to lower fuel prices and cuts in ACC levies. Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, and reduced drag from tradables inflation," he said, adding that monetary policy would continue to be accommodative.
"Our current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range," he said.
"Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."
Flat from now until at least end of 2019
The bank forecast in its Monetary Policy Statement the OCR would not fall further than 1.7% in its forecast horizon out to the December quarter of 2019.
Banks are not expected to pass much (or any) of the cut on, as they try to slow lending growth to match much weaker inflows into their term deposit accounts.
Within minutes of the decision, BNZ's acting director of retail and marketing, David Bullock, said BNZ would not be changing its retail rates today.
"It’s a good time to remind people that interest rates aren’t directly or solely linked to the OCR," Bullock said.
"Banks get their ability to lend from a few sources, most of which are getting more expensive and putting pressure on margins. One source is local deposits, and at the moment there are more people wanting home loans than there are people saving. So to encourage and attract more deposits (people’s savings and terms deposits) we need to pay a sharper return to savers," he said.
In other political news...
Nick Smith and the Maori Party announced a deal to restart the RMA reforms that were stalled at select committee stages. Smith said he was hopeful the slightly tweaked tweaks to the RMA would pass early next year.
Quote of the day:
Winston Peters on Trump's win:
"The pollsters and media got it wrong because they refused to see what is happening in America and this is not a Republican victory over the Democrats, this is a rejection of neo-liberalism or, in plain words, the elite enriching themselves at the expense of the hard working, law abiding middle-class and workers."
Tweets of the day on the Trump result:
Have you tried turning your country off and on?
Doug Dillaman (a US movie-maker living in NZ)
Just saying, if anyone needs an article written for a left-leaning publication on what it's like for Americans to move to NZ, get in touch.
Hillary Clinton on July 29:
A man you can bait with a tweet is not a man we can trust with nuclear weapons.
Have a (gulp) tremendous day.