The Trump presidency will exacerbate international relations, especially concerning China and Europe

At the end of Wednesday, the Dow Jones Index (US30) was up 3.57%. The S&P 500 Index (US500) was up 2.53%. The NASDAQ Technology Index (US100) closed up 2.74%. All 3 indices hit new all-time highs. Stocks soared after Republican candidate Trump won the presidential election. Republicans also gained control of the Senate, but control of the House of Representatives has yet to be determined. Trump’s policies to reduce illegal immigration, raise tariffs, lower taxes, and deregulation are seen as a potential driver of growth and inflation. The prospect of more government spending and rising debt has further supported the dollar and boosted Treasury bond yields. The dollar rose to a 4-month high on the election news, and the yield on the 10-year T-note jumped to a 4-month high.

Bitcoin (BTC/USD) gained more than 9% and set a new record high as digital assets are expected to benefit from less regulation and President-elect Trump’s support for digital currencies. CNBC reports that Bitcoin could reach $100,000 before Trump’s inauguration, given expectations of friendly policies for digital assets from the Republican administration.

The US Federal Reserve will hold its monetary policy meeting today. Economists expect the FOMC to cut the rate from 5% to 4.75% by a quarter point. Friday’s Non-Farm Payrolls Report, which showed job growth in October nearly stalled amid strikes and weather conditions, reinforced expectations of a smaller rate cut. The US inflation fell to 2.4% y/y in September, barely above the Fed’s 2% target and in line with 2018 levels. Combined with GDP growth and Trump’s presidency, it doesn’t make sense for policymakers to aggressively cut rates, so investors expect another 0.25% rate cut at the December meeting. Much will depend on Jerome Powell’s press conference. For the dollar to come under selling pressure, Fed policymakers must express concern about the state of the US economy and make it clear that aggressive easing is needed in the coming months.

Equity markets in Europe fell steadily yesterday. Germany’s DAX (DE40) fell by 1.13%, France’s CAC 40 (FR 40) closed down 0.51%, Spain’s IBEX 35 (ES35) lost 2.90%, and the UK’s FTSE 100 (UK100) closed negative 0.07%. 

ECB Vice President Guindos said global economic output would be weaker, price pressures would be stronger and established trade flows would be disrupted if US President-elect Trump imposes the import tariffs he threatened during his campaign. 

WTI crude oil prices rose to $72 a barrel on Thursday as investors continued to assess the potential impact of Donald Trump’s election victory on oil markets. The Trump administration is expected to stimulate US economic growth and boost consumption through fiscal spending and tax cuts, and is expected to be favorable to US oil producers. However, concerns remain that Trump’s trade tariffs could put pressure on China’s economy, which could reduce oil demand from the world’s largest importer. Meanwhile, the EIA reported that US crude inventories rose by 2.1 million barrels, beating estimates by 1.8 million barrels.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) rose by 2.61%, China’s FTSE China A50 (CHA50) fell by 1.17%, Hong Kong’s Hang Seng (HK50) lost 2.23%, and Australia’s ASX 200 (AU200) was positive 0.83%. 

The offshore yuan rose to around 7.18 per dollar, rebounding from a three-month low in the previous session, as the threat of additional tariffs of 60% or more on Chinese goods in the event of a second term for President Donald Trump fueled optimism for stronger stimulus measures from Beijing. Earlier in the week, Premier Li Qiang of China’s State Council expressed confidence that China would meet its annual GDP target, citing support for a series of policy measures adopted by Beijing.

The Australian dollar fell by 1.9% on Wednesday, pressured by a sharp rise in the US dollar after Donald Trump’s convincing victory in the US presidential election. The Reserve Bank of Australia (RBA) noted that the impact of Trump’s victory on the Australian economy remains highly uncertain and the Central Bank is awaiting China’s reaction to possible policy changes.