With the Republicans likely to control all four levers of the US government from the White House to the Supreme Court, Lombard Odier believes that the second Trump administration has a “clear mandate” to shift US economic policies.
“Donald Trump has the means to alter the US economy and financial markets, and a clear message from voters is that they are seeking policy change,” says Lombard Odier’s global chief investment officer Michael Strobaek in a Nov 11 update. “Whatever your political view, Trump is poised to become one of the most influential US presidents in the country’s history. The implications are global.”
Strobaek previously called the results a “total meltdown of Democratic leadership and policies for the last four years in many aspects”. The Grand Old Party is set to control all three institutions: the Presidency, the Senate and the House of Representatives.
“Days after the vote and ten weeks before the new administration takes office, Europe, Asia and the Middle East are already feeling the impact. The German government has collapsed just when Europe so urgently needs strategic leadership,” he adds.
As analysts and economists from key financial houses scrambled to weigh in on what the administration would mean for the global economy, the effect of Trump’s victory almost immediately unleashed a massive rally in the dollar and drove US equities to record highs.
Tesla’s stock market value surged 9% to over US$1.1 trillion ($1.47 trillion) as at Nov 11, fuelled by bets that the company will benefit from CEO Elon Musk’s close ties with Trump. The S&P 500 has rallied almost about 4%, and Bitcoin soared to a record US$87,000 ($116,302.47) as at Nov 11. Bitcoin nearly reached the US$90,000 mark on Nov 12.
Trump’s ‘America first’ policies
Beyond immediate market enthusiasm for a Trump administration, the challenge for investors is to figure out which segments will endure.
Lombard Odier’s Strobaek says that what this means for the economy is “straightforward”. A Trump administration will have an identity that is America first, in which he will push for policies that will favour America against the rest of the world. This will materialise through three policies — tariffs, tax cuts and restrictive immigration, the CIO notes.
Broadly, Trump has threatened to implement 20% tariffs on all imports, and as much as 60% of tariffs on China imports. In his first term, he had already cut the US corporate tax rate from 35% to 21% under the 2017 Tax Cuts and Jobs Act. This rate could likely go down further to 15%, and might also extend to expiring individual income tax cuts
On immigration, a mass deportation of undocumented migrants in the US is expected, and the sealing of the border by continuing with the construction of a lengthy wall at the border with Mexico.
UOB’s global economic and markets research team in their Nov 6 note highlighted that tax cuts will have positive effects on America’s gross domestic product (GDP) and inflation, but will likely worsen the country’s fiscal deficit and debt position.
Tariffs could result in trade diversion from China to Asean to bypass tariffs, although details are lacking at this stage, they note. “Negative on growth, but the magnitude of the downside will depend on the extent of tariffs enacted and whether there are retaliatory responses from other economies,” the UOB economists say. This may also have short-term inflationary impacts.
On immigration, this will have negative effects on the US GDP, especially for California, Texas and Florida since they have the highest share of unauthorised migrants in their workforce, UOB notes.
A red sweep is positive for US equities
“US exceptionalism could be prolonged should the new Trump administration implement the tax cuts as promised,” says Maybank Group Wealth Management Research in its Nov 7 report.
Notably, the proposed reduction in corporate tax rate from its current 21% to 15% could boost US corporate earnings by around 5%, it notes. Banks in the US could benefit from stronger economic growth and looser regulation, while industrial stocks could also gain as Trump’s planned tariff hikes could result in further reshoring of manufacturing activities.
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Trump has also expressed interest to increase US defence spending which could benefit defence-related companies, Maybank adds.
Julius Baer’s research team says that tax cuts, combined with higher fiscal spending should lead to higher economic growth in the US, at 2.4% vs 2.1% for 2025 according to their preliminary assessment, translating to positive impact on earnings growth for equities.
However, citing recent studies, Julius Baer notes that the implementation of trade tariffs will hit S&P 500 earnings by 3.8 percentage points (ppts) in 2025. Industries such as automobiles, semiconductors and chemicals are most exposed to the tariff risks, it notes.
Like Maybank, Julius Baer says a Trump administration should give a further boost to cyclical sectors, such as industrials and quality mid-caps, which are among their favourites to position for the cyclical recovery in global growth. Moreover, Trump’s perceived policy preferences favour segments such as banks, oil and gas, and defence stocks, it adds.
Markets will price in the growing likelihood and possibility of a peaceful conclusion to the conflict, for example, between Russia and Ukraine, which will benefit the energy sector, says John Woods of Lombard Odier Asia.
Lombard Odier’s Strokbaek, in his Nov 11 note, recommends investors to remain on the “right side” of US policy shifts and avoid geographically exposed assets.
“This means focusing on low-risk, liquid assets in markets that are grounded in the rule of law. Concretely, that includes the US, Swiss and European assets. Emerging markets and their associated asset classes are less appealing,” he says.
He adds that the US dollar should remain supported by demand for US assets and with interest rates likely to remain above those of other developed economies. “We have raised US equity and dollar exposures above strategic levels and reduced our tactical allocation to sovereign bonds,” says Strobaek.
Upside to bond yields
The US Federal Reserve (US Fed) further slashed interest rates by 25 basis points (bps) to 4.5% to 4.75% on Nov 7. Maybank analysts note that the pace of subsequent rate cuts “could be more gradual” should growth or inflation turn out to be higher than expected.
“We see upward pressure on US Treasury yields in the near term though the inflation risk may not be as bad as feared. Notably, US headline inflation did not exceed 3% during Trump’s first term presidency. The negatives may have also been partly priced in with the 10-year US Treasury yield up by about 1% from its lows of 3.6% in September,” they say.
Likewise, Julius Baer analysts say that fixed income markets have been preoccupied with the US presidential election for quite some time now. The 10-year US Treasury rose about 80 bps since mid-September, a “substantial move” in historical terms.
Given the volatility, the analysts note that it is difficult to declare that longer-term yields have reached an attractive entry point “just yet”, even if the levels look more appealing again. “In other words, we would still refrain from extending duration extensively,” they say.
While current levels do offer opportunities for investors to gradually reduce reinvestment risks, there is no need to use very long maturities for doing that and thereby unnecessarily increase swings in fixed income portfolios. There will still be a chance to do so when the bond market stabilises again, they add.
Instead, a balanced duration approach with good opportunities now in the tenor range of three-to-seven years is Julius Baer’s preferred strategy. Longer-dated high-quality bonds should just be kept for hedging related purposes, in case of a US recession, the analysts note.
“More broadly and going forward, it seems that bond market investors need to live with larger shifts coming from the “risk-free rate” component, i.e. safe government bonds, in a world of higher fiscal vulnerabilities and uncertainties,” they say. They therefore still see more value in corporate debt, which remains in a position to dampen some of these moves through spread adjustments.
Woods from Lombard Odier says that as interest rates gradually fall, the US$7 trillion currently held in money market funds will rotate and migrate down the curve to investment grade. He anticipates an attractive return of 5% to 6% over the next 12 months, and remains overweight on investment-grade and high-yield products within the fixed income group.
Meanwhile, BlackRock Investment Institute’s analysts stay neutral on long-term US Treasuries, preferring instead medium-term maturities and some quality credit for income. They also expect yields to rise over time as investors seek more compensation for the risk of holding bonds.
60% tariffs on China
Trump’s threat of imposing 60% tariffs on China will clearly hurt the country’s plans to fix the export-oriented parts of its economy, and further strain relations between the world’s largest and second largest economies. Analysts from Maybank say that the Chinese government could implement more support measures to mitigate Trump’s plans.
Yet investors were disappointed with the conclusion of the National People’s Congress (NPC) standing committee meeting on Nov 8. The meeting saw the approval of bills to allow local governments to allocate RMB10 trillion ($1.85 trillion) towards reducing off-balance sheet, or “hidden”, debt.
Investors had hoped the high-level gathering would also roll out potent fiscal spending to counter the threat of tariffs from Trump’s second presidency.
Xu Jianwei, senior economist of Greater China, Natixis CIB, states that their quantitative estimations show that China’s GDP will face a reduction of approximately 1 ppt as a result of Trump’s tariffs. This has a huge impact on China.
Xu acknowledges that there is some optimism in the market that China can gradually adjust to the new environment and that Trump may not actually impose a 60% tariff given the knock-on effect this will have on consumers and producers in the US.
While this could result in the final impact of less than 1 ppt on China’s GDP, Xu notes that it is simply too early to tell at this stage.
Xu notes that China’s total supply will shrink given the smaller market size for Chinese producers. This would result in a slower GDP growth, further dampening domestic spending and leading to a multiplier effect on China’s GDP.
Analysts at UBS’s chief investment office also anticipate an overall stimulus package of RMB30 trillion to RMB50 trillion in the coming five to 10 years, which would primarily involve local government debt resolutions, property inventory destocking and social welfare support.
“Amid potential volatility spikes, value sectors with high dividend yields such as financials, utilities, energy, and telecoms, should stay resilient. If the market falls sharply and if the eventual policy response from the NPC standing committee meeting is constructive, we would consider a more positive view. We expect more volatility ahead while the market awaits concrete tariff announcements from a Trump administration, which would likely take place in mid-2025,” the UBS analysts note. They keep their “neutral” view on Chinese equities for now.
Asia ex-China
Alicia Garcia-Herrero, chief economist of Asia Pacific Natixis CIB, notes that under a Trump administration, it is evident that any Asean economy with strong economic ties to China will be significantly impacted by Trump’s policy.
This is true for countries that serve as transshipment points for Chinese exports, such as Vietnam as well as countries like Indonesia whose commodities production are heavily dominated by Chinese players.
According to Garcia-Herrero, Asean economies that have natural resources under their control and are less dependent on China are likely winners. These countries are well-positioned to attract US investment and production as companies look for alternatives to China.
The team at Morgan Stanley Asia Research spells out two scenarios of tariffs and their impact on Asia. Should tariffs on China be kept to under 50%, the growth downside could be less than in 2018 and 2019.
If tariffs exceed 50% on China and a universal 10% tariff is implemented on the rest of the world, this would make for a repeat of 2018–2019 for Asia. In this scenario, analysts believe that the damage on corporate confidence and global capex and trade cycle would be much larger.
“Asia ex-China has become more dependent on the US as a source of end-demand. A universal tariff would also limit the incremental benefit Asia ex-China receives from supply chain diversification efforts, by discouraging the corporate sector from near-/friend-shoring and favouring onshoring in the US instead,” they say.
As other economies might potentially also take up retaliatory efforts and global supply chains might have to be rewired yet again, the corporate sector could face significant disruption, they add.
“The ensuing slowdown in global corporate confidence and capex would impart a material effect on the region’s growth trajectory — about 0.9 ppt growth drag like in 2018–2019 or more,” they note.
They anticipate Korea, Taiwan, Malaysia and Thailand to be more exposed considering the high trade orientation of their economies, while India, Japan and the Philippines are the least exposed.
Bitcoin nears US$90,000
The world’s largest cryptocurrency has topped new highs every day since Trump won the election. It will soon approach the US$90,000 mark, with investors anticipating Washington to take a turn towards more crypto-friendly policies under Trump.
Trump embraced digital assets during his campaign, promising to accumulate a national stockpile of bitcoin and make the US the “crypto capital of the planet”, a far cry from this first term as president when he called Bitcoin a “scam”.
Other cryptocurrencies like Solana, Ethereum and Dogecoin have also notched big gains. Dogecoin, a so-called meme token often promoted by Elon Musk, has nearly doubled in value since the Nov 5 elections.
Maintaining a ‘Goldilocks’ outlook
RHB Bank Singapore’s acting group chief economist and head of market research Barnabas Gan, senior fixed income strategist Chris Tan and associate economist Wong Xian Yong remain unfazed by a Trump win as they maintain their “Goldilocks” outlook for 2025.
In their Nov 6 report, the RHB team believes any short-term volatility in the global economy is likely to be insufficient in denting the “remarkably resilient global economic growth trend”.
Even though investors are concerned over Trump’s potentially protectionist-led policies and their negative impact on China and Asean, RHB thinks it is too early to call for a sizable downturn.
President-elect Trump’s “Make America Great Again” policies may also support US economic growth, which injects “upside bias” to the RHB’s team’s expectations of a 2.0% expansion in 2025. The team also sees Trump’s rhetorically staunch opposition to any escalation in geopolitical conflicts as a plus even if things are unclear at this point.
Finally, the RHB team believes that any risk-taking is likely to turn positive after the elections, based on empirical evidence.
“Our analysis indicates that S&P behaviour post elections is broadly up-trend, except for 2008 (Obama–McCain),” says the RHB team. As they see global growth remaining resilient in 2025, the team has kept its asset allocation strategy unchanged: “overweight” on equities, “market weight” on fixed income and “underweight” on cash.
The team has also maintained its view for the Fed Funds Rate (FFR) to be cut by 100 bps by the end of 2025.
“We think the verdict on inflation is still up for debate given Trump’s potential move to cut energy prices and lower corporate tax rates. Ceteris paribus, our model suggests higher tariffs to mean a US core inflation rate of as high as 4.0% in 2025,” it says.
