Trump declares victory, as stocks and risk sentiment surge

Kathleen Brooks XTB UK

Trump has declared victory on stage in Florida, it’s a little premature, but he is only 4 electoral college votes away from winning, and there is no way for Harris to catch him at this stage.

In the end, this was not a tight race, and it was wrapped up quickly. This has helped to boost risk sentiment on Wednesday, as it reduces the chance of civic unrest. The national opinion polls got this election very wrong. Even the market-based prediction polls had narrowed sharply in recent days, although they had consistently predicted a win for Trump.

A red wave takes power in the US

The results of this election are clear: it’s a red wave, he has received a massive mandate for his agenda, and Trump and the Republicans could get a clean sweep after winning the Senate and the White House. Trump won the popular vote and in the last 4 years it looks like more Americans have turned Republican.

Financial markets were right all along

This result also suggests that the market was right all along. In the aftermath of the result, the market has put the Trump trade back on. However, there is some ‘buying the rumour, and selling the fact’ going on. Bitcoin has backed away from the record high $75,000 level, the dollar has stabilized after sharp gains overnight and US Treasury yields are also down a touch.

US stocks set to make fresh record highs

US stocks are set to surge when they open later today. S&P 500 futures predict the stock index will surge above 5,900, which would be the 48th record high of the year so far. This move higher in US stocks could lead to upward revisions to analyst expectations of where they think the S&P 500 will end the year. A yearly close above 6,000 is now looking possibly. US stocks surged in the aftermath of Trump’s 2016 victory and his promise to lower taxes and cut red tape is supportive of the next leg higher in US stocks.

Commodities under pressure

The commodity market is also on the move. The gold price and the oil price are both lower this morning. Oil is falling as Trump promises to pump more oil, which will exacerbate the over supply in the oil market for the longer term. Gold is also lower. This could be a sign of 1, a stronger dollar, and 2, less risk aversion and a lower chance of civic unrest due to the clear win for Trump and the Republicans. It is also a sign that gold is not trading as an inflation hedge anymore.

Trump talks Elon, but avoids tariffs

Trump’s first message as the expected President-elect was to declare there will be no wars, which suggests that he will try and work with Russia to bring the war with Ukraine to an end. This is weighing on the oil price on Wednesday; however, it could lead to geopolitical upheaval. It’s unclear if this would be good news for Ukraine, or if Trump will work in Ukraine’s best interest. He also said there will be more oil, which suggests that he will quickly roll back Biden’s US Inflation Act, and the subsidies for green energy. He said that he will pay off the debt, however, independent economists think that a Trump presidency will boost the US’s debt levels. Unsurprisingly, he also said there will be less tax.

There was no talk about tariffs or making bitcoin a mainstream currency, which may be one reason why bitcoin has backed away from recent highs.

Will Trump’s pledges become reality?

The question now is, how much of Trump’s agenda will be put into practice? Trump’s Make America Great Again mantra is very America-first, however, European stocks have opened higher on Wednesday, although the Hang Seng is extending losses since China is exposed to a Trump presidency.

The fact that Trump did not mention tariffs or global trade in his victory speech is helping to boost risk sentiment, however, it is early days and there will be plenty of time in the future for Trump to talk about trade barriers.

The dollar remains the best performer in the G10 FX space today, and we expect the dollar to trade with an upward bias in the long term now that Trump is virtually confirmed as the next President of the US.

Interestingly, the rise in Treasury yields is taking the pressure off UK yields, which rose sharply on Tuesday.

Ahead today, the focus could shift to the FOMC meeting on Thursday and the BOE meeting, however, the stunning victory for Trump and the Republicans is likely to dominate markets for the long term.

Author

Kathleen Brooks

XTB UK

Kathleen has nearly 15 years’ experience working with some of the leading retail trading and investment companies in the City of London.

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