Main consequences of Trump’s election on the global financial markets:
Trump’s economic policies are unlikely to derail the resilient global growth in the short term, underpinned by rate cuts and declining inflation in major economic regions.
In the U.S.: Trump’s new presidential administration benefits from a strong economy
The Trump administration is likely to face an economy with stabilizing growth around 3% and moderating inflation at 2.4%, although price levels remain challenging for many. Unemployment has risen modestly but remains historically low, and the Fed is expected to gradually ease interest rates to a neutral stance. Nonetheless, fiscal deficits are projected to remain high in the coming years.
In Europe: Bracing for additional tariffs on goods exported to the U.S.
Monetary policy is loosening, but consumer caution is slowing the pace of recovery as savings take precedence over spending. In October, the European Central Bank (ECB) implemented a 25-basis-point rate cut, marking its third reduction this year due to concerns over weak economic momentum in the region.
In China: New fiscal stimulus expected amid Trump’s promise to increase tariffs on Chinese exports to the U.S.
China’s October Purchasing Managers’ Index (PMI) showed broad-based improvement, with manufacturing returning to expansion, likely due to recent government support measures. Production and new orders grew, particularly in equipment, electric machinery, and auto sectors, while import orders reached a three-month high, suggesting stronger domestic demand. However, Trump’s election and his promise to increase tariffs on Chinese exports to the U.S. to 60% could slow China’s economic recovery. In response, additional fiscal stimulus measures are expected from the National People’s Congress (NPC) meeting held on 4-8 November.
Equity: In October, global equities delivered a negative total return of 1.5%. U.S. indices S&P 500 and Nasdaq 100 posted modest declines month to date but maintained strong year-to-date gains of 19.6% and 18.2%, respectively. The Euro Stoxx 50 and Hang Seng China Enterprises Index fell 3.5% and 3.3% in October, while the Nikkei 225 rose 3.1%. Volatility (VIX) increased by 6.4 percentage points, reflecting higher market uncertainty. Following Trump’s win, U.S. stocks have progressed another 2% while Chinese stocks lost 3%.
Fixed Income: Fixed income markets faced pressure as investors adjusted their expectations regarding Fed policy easing. U.S. Treasury yields rose significantly, with the 2-year and 10-year increasing by 54bps and 50bps, respectively. German yields also showed positive gains, with the 2-year up 22bps and the 10-year up 26bps. Chinese yields were relatively stable, with a slight increase of 2bps on the 2-year, while the 10-year saw a minor decline of 3bps.
Currencies: The U.S. dollar strengthened broadly, with EURUSD and GBPUSD declining 2.5% and 3.1%, respectively, and AUDUSD down 4.9%. USDJPY saw a significant rise of 6.8%, while USDRMB increased 2.1%, reflecting the dollar’s resilience against major currencies. Following the U.S. election result, the USD quickly gained 2% versus EUR and 1.5% versus RMB.
Commodities: In October, WTI oil rose 1.6% and gold increased 3.9%. In contrast, copper declined 4.1%, reflecting weaker demand in industrial metals.
Bitcoin: The cryptocurrency performed strongly, gaining 6.2% for the month and a substantial 66.8% year to date. Bitcoin rose another 9% in the first week of November amid the U.S. presidential election.
Global equities declined by 1.5% in October, reducing their year-to-date gains to 15%. Despite this setback, the macroeconomic environment remains supportive, with central banks continuing rate cuts, positive global growth, and on-going China economic and fiscal stimulus.
In the U.S.: The U.S. stock rally continues on Trump’s win
U.S. equities declined by 1% in October, largely due to investor disappointment over major tech earnings. While Q3 earnings season started strong, with S&P 500 EPS growth expected at 11% for 2024 and 8% for 2025, concerns about big tech weighed on markets. Microsoft, Meta, and Alphabet saw declines despite beating expectations, as investors focused on specific issues like OpenAI’s losses and Meta’s projected higher capex. Nonetheless, tech results showcased improving AI monetization, reflected in accelerated cloud growth.
In Europe: Trumps’ tariffs on European goods exported to the U.S. weigh on equity valuations
European equities remain supported by a stable growth outlook, cooling inflation, and easing monetary policy, although further upside may be limited as new tariffs will be imposed by Trump on European goods exported to the U.S. Valuations appear reasonable at a 12x forward P/E for the Stoxx Europe 600, but earnings recovery is slow, with projected flat growth in 2024 and a 5% increase anticipated in 2025.
In China: Stocks sell off on expected new Trump tariffs on Chinese goods exported to the U.S.
Chinese equities declined by 3.3% in October, following a strong year-to-date gain of over 25%, driven by investor optimism around Beijing’s growth-supportive stimulus measures. Chinese stocks further lost 3% on Trump’s election win.
De-dollarization is accelerating as the U.S. continues to print money, while the euro and Chinese yuan are pressured by a new set of U.S. tariffs on European and Chinese goods.
Due to heightened currency volatility and uncertainty amid Trump’s new tariffs on China and Europe, we recommend hedging (protecting) EUR and RMB exposures.
EURUSD at 1.07: perfect-storm parity risk
Europe’s sub-1% growth, combined with low and declining interest rates as well as additional tariffs from the U.S. on imported European goods, could trigger a EUR/USD fall towards parity. The ECB is expected to continue cutting rates by 25 to 50 basis points per quarter through at least mid-2025.
USDRMB at 7.20: upward pressure with volatility expected amid additional U.S. tariffs on imported Chinese goods
USDRMB may see a rebound as new tariffs are likely to be imposed on Chinese imports to the U.S. The People’s Bank of China (PBoC) will mitigate USDRMB volatility by keeping the USDRMB daily fixing within a range. However, at some point, the pair could decline, supported by demand for RMB assets and corporates selling USD to buy RMB. In the medium term, with the U.S. interest rate cutting cycle ongoing while RMB interest rates remain stable at low levels, we expect USDRMB to decrease in 2025 alongside U.S. rate cuts. Additionally, the renminbi is bolstered by a substantial trade surplus of approximately USD 100 billion per month, exerting downward pressure on USDRMB.
USDJPY at 154.50: drop from all time high 162 to 140 and rebound to 154.50 on Trump’s win
The Liberal Democratic Party’s recent lower house election loss has prevented the Bank of Japan (BoJ) from further raising interest rates, driving USDJPY above 153. Political uncertainties in Japan and the U.S. could sustain volatility in the coming weeks, yet the interest rate differential tightening continues to suggest a medium-term downtrend for USDJPY.
How to benefit from the cycle of central bank rate cuts?
The yield curves in USD and EUR are steepening, i.e. the slope is becoming positive (long-term rates > short-term rates). This means that there are now opportunities to lock yields for longer maturities. Yields have declined since 2023 but are still high with respect to the levels of the past 15 years.
Bond yields remain elevated as overall bond credit spreads (i.e. the extra yield above government yields) are wider, reflecting some political unrest and uncertainty both in the U.S. and Europe. Central bank rate cuts have started, and robust economic growth is maintaining low default rates. This environment presents an opportune moment to increase active bond exposure.
High interest rates can be locked for longer periods by investing cash in bonds from large Investment Grade banks, which can provide an income per annum of 5%+ net in USD and 4%+ net in EUR, with a duration of 5 to 10 years.
Gold: USD2,660 / oz up 30% YTD, dropped from the all-time high on U.S. Treasury yield surge on Trump’s win
Gold sold off on Trump’s win as the 10-year US Treasury yield surged from 4.3% to 4.5%, competing with the 0% yield safe haven precious metal. Gold reached record highs in October at USD 2,790/oz, driven by strong central bank purchases and expectations of Fed rate cuts. Despite rising U.S. Treasury yields, demand for gold-backed ETFs has grown amid U.S. election uncertainty as well as fiscal and geopolitical risks. Q3 gold demand rose 5% year-over-year to a record 1,313 tons, according to the World Gold Council.
Oil: Stabilizing near USD 70/bbl with upside potential
Oil prices experienced volatility in October due to geopolitical tensions, with WTI crude oil reaching above USD 70/bbl before settling around USD 69/bbl by month end, finishing up 1.6% month to date. Prices are expected to remain supported by potential Middle East supply risks, with a likely recovery above USD 70/bbl, aided by global rate cuts and OPEC+ supply restraint.
