Gavin Friend, a market economist and strategist at NAB, shares his insights on the aftermath of the US Presidential election. He highlights a notable 'Trump trade' with rising US dollar and equities, while European markets take a hit. Gavin discusses potential impacts on key players like the Fed and Bank of England, speculating on Trump's tax cuts affecting US rates. The conversation also touches on China's upcoming stimulus and the broader implications for global markets and trade relations, particularly with Europe.
The announcement of Trump as president-elect sparked significant gains in U.S. equities, reflecting investor optimism in his promised economic policies.
Global markets, especially Europe, reacted negatively to the election, demonstrating concerns over the potential impacts of Trump's trade and tax reforms.
Deep dives
Market Response to Trump’s Election Victory
The announcement of Donald Trump as the president-elect has led to notable market reactions, with U.S. equities experiencing significant rises. For instance, the Nasdaq surged by 3%, while the Dow and S&P followed closely with gains of 3.6% and 2.5%, respectively. Additionally, the U.S. dollar rose by 1.6%, reflecting increased investor confidence in the potential economic policies under Trump’s administration. This bullish sentiment in U.S. markets comes at the expense of international equities, which saw declines after his election results.
Anticipated Policy Changes and Economic Implications
There is a prevailing expectation that Trump's administration will implement various economic policies, primarily focusing on trade and tax reforms. Analysts believe there will be a push for tax cuts and possibly changes in tariff regulations that favor U.S. companies, which could stimulate domestic growth. However, uncertainty remains as these policies won’t take effect until Trump assumes office, and many discussions are expected to focus on immigration and U.S. manufacturing interests beforehand. The market is currently reacting to speculation about how these policies might influence the Federal Reserve's approach to interest rates.
Global Economic Impact and Future Considerations
The election outcome has created divergent trends in economic conditions globally, particularly affecting Europe and other markets. European indices have dipped as investors express concerns over the implications of U.S. tariffs and Trump's policies on international trade relationships. For example, analysts noted that the Eurostox 50 and DAX see drops of over 1%, highlighting the potential challenges Europe may face amid U.S. economic changes. Looking forward, there are questions about how the U.S. will navigate its foreign relations, especially with key partners like China and the EU, and whether Trump's upcoming administration can foster a balanced economic landscape.
There is a Trump trade after all, and we just saw it. The US dollar rising, bond yields in the US pushing higher, US equities higher at the expense of equity markets elsewhere. NAB’s Gavin Friend joins Phil to talk through the market response to the US Presidential election news. They discuss how it’s hit Europe and how it could prompt a domestic focus on China’s stimulus, which is expected to be announced on Friday. Meanwhile, will the news have any impact on the Fed and Bank of England, both meeting in the next 24 hours. Not this time round says Gavin, but there’s no doubt Trump’s promise of further tax cuts could have an impact on the terminal rate in the US.