Trump win rocks global markets
The strong endorsement of Donald Trump as the 47th US President and a Republican Senate majority has already resulted in big shifts for major markets.
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It wasn’t a complete surprise, but the strong endorsement of Donald Trump as the 47th US President and a Senate majority for Republicans has sent shockwaves through global financial markets.
US stocks soared to all-time highs on the prospect of debt-fuelled economic growth.
Bitcoin also soared to a record high because of Trump’s love for the cryptocurrency and his intension to “fire Gary Gensler” the US Securities & Exchange Commission chairman.
US Treasury yields soared amid concerns over the prospect of increased US debt and inflation, stemming from Trump’s stance on both fiscal and trade policy.
The US dollar jumped against most global currencies which could be hit by tariffs, and the Australian dollar dropped to a three-month low, partly due to its sensitivity to China’s economic outlook.
Commodities were also in the firing line with gold hit by US dollar strength and easing political uncertainty. Copper prices were slammed as China faces a big lift in tariffs.
“Trump’s policies are undoubtedly positive for the US economic growth outlook but are also inflationary,” said Equity Trustees Asset Management head of equities Chris Haynes.
“The combination of greater tax cuts, higher government spending and the prospect of significant tariffs are likely to keep inflation higher and reduce pace of interest rate cuts.”
In its biggest-ever post-election day rise in history, the S&P 500 jumped 2.5 per cent to a record-high close of 5929.04 points as investors bet Trump 2.0 will enact pro-growth policies which will boost Corporate America.
Tesla soared 15 per cent on CEO Elon Musk’s strong relationship with Donald Trump. But, the impact on stock benchmarks was stronger for industrials and small-cap companies.
The Dow Jones index soared 3.6 per cent and the Russell 2000 Small Caps index leapt 5.9 per cent.
In a bullish sign for the stock market the Dow Jones Transportation Average jumped to a fresh high.
“The prospect of huge fiscal stimulus, via predominantly tax cuts, has juiced the prospects of growth and future earnings,” said Capital Group market analyst Kyle Rodda.
“The relative winners are so-called ‘real’ or ‘old’ economy stocks.”
Wall Street’s “fear gauge” — the VIX index — had its biggest fall since August.
The 10-year US Treasury yield closed up 16 basis points at a four-month high of 4.43 per cent and the yield curve steepened on inflation risks and the prospect of fewer rate cuts than were expected.
“Fed funds rate pricing shifted materially to a higher terminal rate,” said NAB head of market economics Tapas Strickland.
However, a 25 basis point cut in the Fed funds rate was still expected to be announced when the Fed concludes its meeting at 6am AEDT on Friday.
“Again, the fundamental story would be Trump’s supposed preference for policies that would be fiscally expansionary and inflationary and whether this will prevent the Federal Reserve from cutting interest rates as much as the market had hoped,” said AXA Investment Managers CIO Chris Iggo.
“Growth is arguably above trend, inflation is still above target, and so the Fed might need to keep rates on the tighter side of neutral for longer.”
The Wall Street Journal’s Nick Timiraos said it depends on whether the election result causes meaningful change in economic demand or inflation which warrants a different policy path, whether jitters about job-market deterioration had been overstated and where inflation is headed.
In currency markets, an index of the US dollar measured by Bloomberg rose 1.3 per cent.
US dollar strength, plus trade jitters, pushed the Aussie dollar down as much as 1.9 per cent to a three-month low of US65.13c.
Bitcoin was a standout, soaring more than 10 per cent to a record high of $US76,475.95. Spot gold dived 2.8 per cent to $US2667.06 per ounce.
In commodities, COMEX copper futures fell 5.1 per cent to $US4.243 per pound.
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