Trump will be president of the United States again: what do the markets expect?
Financial markets/economy
Posted by MoneyController on 06.11.2024
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Donald Trump has won the US elections and will soon become the next President of the United States. The administration will change sign: from Democrat, the government in Washington will become Republican. What had financial analysts said so far about the former president's victory?
During the election campaign, both Donald Trump and Kamala Harris had promised to raise the national debt. As reported by ‘Market Watch’ in an article by William Watts, Tom Essaye (founder of Sevens Report Research) wrote that Trump's Republicans were seen as more growth-oriented, but using deficit leverage. But what were the estimates of this growth? Jasmine Li of the Wall Street Journal reports on the forecasts of the ‘Committee for a Responsible Federal Budget’: the average estimates (referring to the time frame 2026-2035 and formulated by analyst Chris Krueger of TD Cowen) were of an increase in debt of USD 3.5 trillion in the case of Kamala Harris's election, but rising to USD 7.5 trillion in the case of Donald Trump's victory.
These promises of spending, as the probability of Trump's victory increased, had led Treasuries to gradually lose value, while at the same time driving up their yields. More debt, in fact, means more risk for US debt securities, which, in order to become attractive in the market again, must see lower prices on the one hand and higher interest rates for investors on the other.
It must be considered that Trump's victory does not yet mean an overwhelming majority even in Congress. At the moment, Trump has won it in the Senate. Not having a majority in Congress means having little chance of getting the entire plan promised during the election campaign passed; so that the estimates given above (concerning spending) fluctuate between two highs and lows: between a zero impact and one of 8.1 trillion in the case of a Harris victory, between 1.4 trillion and 15.1 trillion in the case of a Trump victory. It seems increasingly likely, however, that Trump can win a majority there too and implement his promises by a good margin.
As Trump's victory approached, the value of the dollar and of bitcoins, the reigning cryptocurrency that Trump supported during the election campaign, even talking about a possible strategic reserve in the virtual currency, rose. What's more, the value of bitcoins has reached a new all-time high: $75,000 each. Tesla's shares have also risen, among others. But this is not surprising: Elon Musk was one of the biggest supporters of the Republican election campaign. In general, the markets seemed to have been betting on the former president's victory for several days (and this was confirmed by the futures on the S&P 500 this morning). Nonetheless, as Walter Riolfi points out in the ‘Corriere della Sera’, the bull phase of the US stock markets (which can be seen, for example, if we look at the growth of the S&P 500) can also be ascribed to the economic results achieved in recent years and especially in recent months by the US economy.
One of the issues to which Trump has most linked his name is the trade confrontation against China. In the election campaign, the next president promised duties on imports of up to 60 per cent from China, but also duties of between 10 and 20 per cent on products imported from Europe (and it is precisely with these that the Republicans plan to compensate, at least in part, for deficit spending). These forecasts are also driving up the value of the dollar, especially in response to the devaluation of other currencies, which will have to become more competitive in order to be competitive again in the US market. In addition, Trump has promised that he will favour oil drilling as much as possible: his is a strategy to improve US energy competitiveness, so that this advantage will also be reflected in a way to counter inflation. Finally, among the additional promises made by Trump is a tax cut for the wealthiest income brackets, as well as for businesses: this is one of the formulas that Trump believes will be crucial for the revival of the US economy.
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