While the results of the US presidential elections are still too early to call, markets have been moving ahead to price in Republican presidential nominee Donald Trump’s playbook, says Yeap Jun Rong, market strategist at IG.
Treasury yields and the US dollar have surged, reflecting mounting expectations that Trump’s inflationary policies may materialise. The US 10-year yields surged 18 basis points (bp) in early trading, while the US two-year yields are up 10bps.
“All is not over, with further conviction of a ‘red wave’ ahead potentially seeing yields eyeing further upside, which may translate to a stronger US dollar,” writes Yeap in a Nov 6 note.
US small-cap equity futures revealed an outperformance, being the beneficiaries from Trump’s “America first” policies and deregulation stance.
Meanwhile, in the foreign exchange space, USD/JPY is up 1.4%. Other USD crosses were under pressure, with AUD/USD, EUR/USD and GBP/USD all down more than 1%.
The US dollar has surged close to 1% in today’s session, reversing all of its last week’s losses. The US dollar has been a beneficiary for a Trump win, with many of his policies around trade, immigration and spending deemed as relatively more inflationary, says Yeap.
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There are positive moves in the cryptocurrency space as well, with Trump’s pro-crypto stance helping to lift Bitcoin to a new all-time high, briefly surpassing US$75,000 this morning.
On the flipside, the Hang Seng Index (HSI) is down some 2.6% in today’s session, having unwound almost all of its previous day’s gains. “Trump’s aggressive protectionist measures may be deemed to have a negative impact on trade activities with key trading partners, particularly with China in his crosshairs,” says Yeap.
As at 1.16pm, the HSI is down some 555 points, or 2.65% to 20,450.51 points. While the HSI is still trading within a near-term consolidation pattern for now, the 20,300 level will be put to the test, with any breakdown potentially unlocking fresh selling pressures to the 19,500 level, says Yeap.
These moves are not without basis, says Yeap. Early indications suggest that Trump has performed better-than-expected in areas where Republicans have not been so well-supported traditionally. “While we can still argue that markets could be getting ahead of themselves to price for a Trump win, ongoing votes suggest that Harris has a narrower path to victory.”
The hopeful path for Harris will be to reclaim all traditional Midwest battlegrounds (Michigan +15, Wisconsin +10, Pennsylvania +19), which will potentially offer her the exact amount of votes to secure her victory, says Yeap. But this is provided that other traditionally Democratic states do not budge, he adds. “Any turn of events from market expectations for a Trump win could be a surprise and drive huge reversals in markets, particularly in the US dollar.”
