Charting the US election impact on AUD/USD, stocks and treasury yields

The US dollar surged, stocks hit a record but Donald Trump’s decisive win wasn’t good news for all markets. These are the charts that told the story.

Wall Street stocks surged in opening trading on Wall Street Wednesday after US voters sent Donald Trump back to the White House and delivered him a Republican Senate..Picture: AFP

It was global markets - shares, currencies and commodities - that told the story of the Donald Trump win.

The weight of money is now being reallocated around what a Trump victory will mean.

In Trump’s victory speech he said he would keep his election promises – tightening immigration, raising tariffs, and cutting taxes. Given experience, it is thought Trump could move faster than he did in his first term.

Trump effect

The direction of trade all boils down to “risk-on”. That is, global investors being comfortable enough with the outcome to take on more risky assets such as US shares and bitcoin.

“Safe-havens’ like the gold and government bonds fall during “risk on” moments.

A trader wears a Trump hat as he works on the floor of the New York Stock Exchange. Picture: AFP

At the some time commodities are in the firing line with the global economy expected to slow on a tariff war.

As votes started to be counted in the US through Wednesday Australian time, the early indications were trending to “risk on” as Trump led in all key battleground states. The conviction of markets only increased into Thursday as it looked like a sweep of the Senate as well as decisive result for the president elect.

These charts told the financial story of Donald Trump’s return to the White House.

US dollar

The Aussie dollar against the US dollar is one of the most liquid currency trades in the world, especially in Asia.

This was the best barometer of Trump’s win during Wednesday’s vote with the Aussie falling as the US dollar was getting stronger on the “risk-on” trade.

The Aussie too weakened being lumped as a commodity currency amid concerns about the tariffs crimping the Chinese economy.

Dow Jones

The Wall Street index surged 3.6 per cent to a fresh record on the Trump win. Lower corporate taxes and a rollback in regulation is expected to deliver high-octane growth for the US economy.

The Dow rallied more than the more closely tracked US shares benchmark the S&P 500 (up 2.5 per cent), given the smaller pool of Dow members have a industrial bent with names like Caterpillar, banks, Boeing and 3M. These are expected to directly benefit from tariff protections and lower taxes.

US Treasuries

The 10-year US Treasury yield are the best indicator of the future performance of the US economy and the direction of interest rates. Remember as people sell bonds the yield rises.

Despite the huge US debt, Treasuries are seen as the ultimate tradable safe haven. Bond yields surged as funds moved into shares.

Bond money are ultra-conservative and there is emerging fears that Trump’s expansionary policies could stoke inflation again which means US interest rates could stay higher for longer (despite pressure from Trump to cut rates).

Copper

The world’s most widely-used mining commodity was slammed. Increased demand for copper typically indicates expectations of a growing global economy, just as a drop in copper demand can suggest a slowdown.

Trump’s wholesale tariff plan is expected to significantly disrupt global trade, and particularly the Chinese economy. However this raises the prospect that the Chinese authorities announce a larger fiscal stimulus package coming out of the National People’s Congress meeting on Friday.

“A renewed trade war between the US and China is bad for the US and Chinese economies. And what is bad for China is bad for Australia, Korea and New Zealand because of high exposure to Chinese domestic demand,” says Commonwealth Bank economist Carol Kong.

Originally published as Charting the US election impact on AUD/USD, stocks and treasury yields