Global markets react as Trump presidency sparks policy shifts, dollar and stocks rally

Donald Trump’s victory in the US presidential election unleashed a shockwave in global markets as traders prepared for dramatic policy and economic change under the new administration, reports Bloomberg.

Trump’s political comeback sparked a surge in risk assets, sending 30-year Treasury yields and the dollar to their biggest gains since 2020. S&P 500 futures climbed 2.3 per cent and Bitcoin spiked to a record. Tesla Inc., co-founded by Trump’s biggest backer Elon Musk, surged 15 per cent in premarket trading.

From London to Shanghai -- investors around the world grappled with the far-reaching effects of a Trump presidency, which is expected to bring steep tariffs on imported products, worsen trade tensions with China and increase pressure on Europe to ramp up defense spending. The Mexican peso fell the most in three months and the euro led losses among Group-of-10 currencies.

“We’ve been talking about this Trump trade for a while. The fairly aggressive market reaction shows that investors didn’t know what to put on, and now they know,” Marvin Loh, senior macro strategist at State Street Global Markets, told Bloomberg TV. “A lot of us will be asking is which ones potentially have either a lot more to move or really does not yet reflect the type of administration.”

Equities also reflected expectations that Trump would loosen financial regulation, embrace crypto and support fossil fuel producers. JPMorgan Chase & Co and Bank of America Corp shares advanced in early trading. Tilray Brands Inc., a cannabis company, sank 10 per cent after Florida voters rejected a ballot measure to legalize recreational marijuana.

Wall Street saw the potential for outsized moves.

Goldman Sachs Group Inc’s trading desk said a Republican sweep may push the S&P 500 up by 3.0 per cent, while moves would be half as much in the event of a divided government. A Morgan Stanley note said risk-taking appetite may dip in the event of a Republican sweep as fiscal concerns fuel yields, but if bond markets take it in their stride the likes of growth-sensitive cyclical stocks would rise.

Here’s What Wall Street Says:

Anastasia Amoroso at iCapital: We have a new investment regime most likely for the next four years or at least the next two years until the next midterm election. This means you can commit to some of those trades. The reason why small caps are rallying is because they are more sensitive to the republican majority and that is helping sentiment, domestic orientation and potential for lower tax.

Justin Onuekwusi at St James’s Place: There is potential for higher short-term volatility in bond markets in the aftermath of the election. We think this is particularly likely around US Treasuries as sentiment adjusts to the result.

Possible higher inflation may also cause yields for long-term bonds to rise higher than short-term bonds. This is sometimes seen as a signal for the start of a strong economic period but can also indicate a time of higher interest rates.

Charlotte Daughtrey at Federated Hermes: Trump’s “proposed tariffs may be reflationary. This may impact the pace of rate cuts or perhaps push them back into a rate hiking cycle, something they are keen to avoid.”

Mohit Kumar at Jefferies: We see a continuation of the US equities rally. Our view has been that a number of investors are sitting on the sidelines and waiting for election uncertainty to be out of the way.

Assuming a clean election result, with Trump policies largely considered positive for the market, a growth picture that is doing fine and a Fed that is ready to cut rates, we see further upside in US equities. We also expect US equities to continue to outperform Europe and global indexes. Samy Chaar at Lombard Odier: The race for the House of Representatives will determine whether campaign pledges can be fully implemented. The question of tariffs is key for global trade and the Fed’s easing prospects