US Elections: Trump wins! What's next for markets?

• “Trump trades” rally as Trump reclaims White House

• Bitcoin & US500 hit fresh all-time high

• USD sees biggest 1-day gain in two years. 

• Fed decision on Thursday could trigger fresh market volatility

America has chosen Donald Trump as its 47th president!

As of writing, Trump has secured 277 electoral votes with Republicans taking control of the Senate.  If the House comes under his control, this will be a “red sweep” scenario.

Assets tied to the “Trump trade” rallied during the Asian session after Trump took an early lead with his victory keeping bulls in the game. US futures are flashing green, Treasury yields have jumped while Bitcoin hit an all-time high.

Before election day, we thoroughly discussed a list of assets that could soar on a Trump win:

• US dollar

Jumped 1.8% - its biggest 1-day gain since February 2023 on the prospects of slower rate cuts by the Federal Reserve.

• Bitcoin

Rallied over 8% to hit a fresh all-time high at $75,152 as crypto enthusiasts cheered a pro crypto president.

• US500 index

Futures climbed 1.4% signalling that the S&P500 will open hitting fresh all-time highs. As mentioned in our week ahead report, the prospects of corporate tax cuts and a softer regulatory environment under Trump is good news for US equity bulls.

• RUS2000 index

Futures gained close to 3%, hitting a 3 year peak as small companies were seen benefitting from Trump’s protectionist stance.

Here are assets that could be burned by Trump’s return to the White House:

• Gold

Dropped as much as 1.5% thanks to a stronger dollar and rising Treasury yields. The prospect of slower Fed rate cuts could limit upside gains.

• Chinese stock indices

FXTM’s CN50 and CHINAH slipped this morning amid renewed fears over US-China trade tensions.

• Currencies of major US trading partners

Euro (EUR), Chinese Yuan (CNH), and especially Mexican Peso (MXN) have all weakened against the USD.

 

The bigger picture…

Trump’s return to the White House will most likely set the market tone for the next few years with the USD, Bitcoin and other assets tied to the “Trump trade” the biggest winners.

Investors with some skin in the game have already experienced how markets reacted under Trump between 2017 – 2021.

Trump’s unpredictability, policy uncertainty and tariff wars with China left investors on edge.

This and other major themes triggered sharp moves on the Vix index during his term. Market volatility jumped over 60% during Trump’s previous administration, from 2017 until 2020. Since then, volatility has fallen about 10% under President Biden.  

 

What does this mean?

Trump’s return to the White House is likely to trigger fresh levels of volatility across the globe.

• Trump’s proposed tariff increases in Europe and China could spark a global trade war.

• If this pushes up the prices for American consumers, a return of inflation may spell higher interest rates - boosting the USD.

• An appreciating USD could hit gold prices along with emerging market currencies.

• On the geopolitical front, Trump has already vowed to “stop wars” and swiftly end the war in Ukraine. Any major shifts in US foreign policy that escalate tensions could trigger risk-aversion.

 

By the way….

The next market-moving event could be Thursday’s Fed rate decision.

As discussed in our week ahead report, US interest rates are widely expected to be cut by 25 basis points in November. But the election outcome could influence what action the Fed will take in December and beyond.

Traders are currently pricing in a 68% probability of another 25-basis point cut by December.

Given how Trump’s victory could lead to rising inflationary pressures down the road, this may prompt the Fed to keep interest rates higher for longer, and potentially even hike rates in 2025 in inflation goes out of control once more.

It will be wise to keep a close eye on the US dollar and gold which remain sensitive to US rate expectations.

• A less dovish than expected Fed may push the US dollar higher while pulling gold further away from its all-time high at $2790.

• If the Fed confirms that a December cut is still on the table, this may limit the USD’s upside while supporting gold prices.

 

For a recap on the US elections:

• US Elections: How might markets react to Harris or Trump win?

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