During the European trading session on Wednesday, November 6, as the Republican Donald Trump announced his victory in the US presidential election, global markets experienced volatility, with European stock indices following the rise of US stock index futures, bond yields increasing, and the US dollar seeing its largest surge in over four years. Bitcoin also hit a historic high.
Fox News predicts that Trump has defeated Democratic candidate Kamala Harris to win the presidency, marking a remarkable political comeback four years after leaving the White House. Other media outlets have not yet announced the final results.
Trump declared victory in his speech to supporters, with the latest results showing wins in Pennsylvania and Georgia, while the Republicans also retained control of the US Senate.
Global markets are in turmoil.
S&P 500 index futures rose by 2.2%, Dow futures hit a historic high, with an intraday increase of 2.8%. The 10-year treasury notes yield surged, and Bitcoin hit a historic high - these changes reflect expectations of Republican candidate Trump returning to the White House.
Some investors on Wall Street are betting that Trump's stance on industrial policy, corporate tax cuts, and tariffs would drive stock market gains and potentially stimulate inflation, thereby raising bond yields and the US dollar. Cryptocurrencies are seen to benefit from relaxed regulation and Trump's public support for digital currency.
The US dollar index rose by 1.2%. The Mexican peso fell by 2.1%, while the Japanese yen declined by 1.5%. E-mini Russell 2000 index futures surged by 5.5%. Due to the Republican stance on protectionism, smaller domestically operating companies are viewed as potential beneficiaries. Tesla soared by 12% in pre-market trading, while Trump's media and technology conglomerate companies rose by over 40%.
During early European trading, markets are concerned about the potential impact of higher tariffs during Trump's administration on the region's economy. The euro dropped by 1.7% to $1.074, while Eurozone government bond yields fell significantly, with Germany's two-year bond yield declining by 10 basis points to 2.19%.
The yield on the 10-year U.S. Treasury notes surged from 4.279% to a four-month high of 4.47%, breaking the previous week's high of 4.388%. The yield on the 2-year Treasury notes rose from 4.189% in New York evening to 4.31%.
At the same time, the currency market expects the European Central Bank to lower interest rates. "For European companies, Trump's return to the White House implies a considerable amount of trade policy and geopolitical uncertainty, which has a negative impact on growth on the European continent," said Holger Schmieding, Chief Economist of Berenberg.
"If you look at the long end of the curve, it reflects that both candidates are not fiscal conservatives, and they are both willing to support the economy through fiscal policy," said Arnim Holzer, Global Macroeconomic Strategist at Easterly EAB Risk Solutions.
"When we all know who the president is, who controls both houses of Congress, the market can move forward, and the risk premium will disappear," said Colin Graham, Head of Asset Strategies at Robeco, "That's today's market performance."
U.S. Election Impact on China
The U.S. presidential election will have a significant impact on the Chinese economy and capital markets. As part of boosting U.S. manufacturing, Trump had promised to impose tariffs of 60% or higher on goods from China.
Gold prices experienced drastic intraday fluctuations, plummeting to $2,701 at one point, below the recent record high of $2,790.15.
The sharp rise in the USD has put pressure on oil prices and other commodities, making it more expensive to purchase with other currencies. U.S. crude oil fell by 1.35% to $71.03 per barrel, while Brent crude dropped by 1.4% to $74.47.
"When I arrived at the office this morning, it was obvious that many assets had already decided that Trump had won," said Luke Hickmore, the investment director at Abrdn. "We may see the U.S. 10-year treasury notes yield reach 5%. Even within this year. People will realize that with his strong push in fiscal matters, inflation will rise."
Goldman Sachs' trading department said a Republican sweep could push the S&P 500 index up 3%, while the gains would halve in the case of a divided government. A report from Morgan Stanley stated that if the bond market calmly responds and yields rise due to fiscal issues, risk appetite may decrease, but if the bond market reacts calmly, growth-sensitive cyclical stocks will rise.
Here is Wall Street's perspective:
Mohit Kumar of Jefferies:
If Trump is confirmed as the next president, we expect the U.S. stock market to continue to rise. We believe that many investors are waiting and watching for the uncertainty of the election to dissipate.
Assuming a clear election result, and Trump's policies are generally seen as market-friendly, with good economic growth and the Fed preparing for rate cuts, we expect the U.S. stock market to further rise. We also expect the U.S. stock market to continue outperforming Europe and global indices.
Frank Benzimra of Industrial Bank of France:
If Trump wins and there is a Republican sweep, the yen is expected to weaken, and the Japanese stock market is likely to outperform emerging Asian markets.
If Trump wins and the Republicans sweep, the combination of a strong dollar and a strong U.S. Treasury yield is unfavorable for Asian assets, but beneficial for the strong S&P index.
Lori Calvasina of RBC Capital Markets:
Our historical analysis shows that regardless of the power balance in Washington, the S&P 500 index tends to rise.
The strongest background is usually when a Democratic president cooperates with a divided Congress or Republican control, and when the Republicans simultaneously control the White House and Congress. In this context, we are more focused on the long-term opportunities that events bring, rather than short-term trades.
James Demmert of Main Street Research:
Investors should look past the election and focus on the fundamentals that drive the market. Economic and profit performance continues to exceed expectations, most stocks are reasonably valued, the Federal Reserve is in an accommodative mode, and another rate cut is expected this week. The backdrop for stocks is very favorable.
Ken Mahoney of Mahoney Asset Management:
Firstly, we would advise investors not to overreact. We believe there may be a strong year-end rally for two reasons: shorts ultimately have to concede and some investment managers who missed out on significant gains may feel performance anxiety.
We do believe that the market tends more towards Trump, as he supports lower taxes and fewer regulations; whereas under Kamala's leadership, we might see higher taxes and more regulations, but the balance of power may prevent many proposed policies from being implemented.
