Financial Markets Brace for Potential Trump Victory
As the US presidential election draws near, with less than a week remaining, financial markets are increasingly speculating on a possible Trump victory. The concept of the “Trump Trade” has resurfaced among investors, reflecting the anticipated impact of his proposed policies on various asset classes. Key issues such as tariffs, immigration, aid to Ukraine, and cryptocurrency regulation are at the forefront of this speculation. Consequently, this trend has resulted in the strengthening of the US dollar, gold, silver, and Bitcoin, while stock markets are experiencing downward pressure.
However, it is essential to note that market movements may be more a response to heightened uncertainty and risk hedging rather than any definitive policy actions from Trump. The policies enacted by whichever candidate wins will significantly influence market trajectories. Even in the event of a Harris victory, a reversal in market direction may be constrained due to the prevailing economic forces that continue to shape investor sentiment.
Euro Could Face Continued Weakness Regardless of Election Outcome
The global market outlook has been significantly shaped by the upcoming US presidential election scheduled for November 5. Betting markets are currently favoring a Trump victory, which has raised concerns among economists. They predict that Trump’s proposal of a 60% tariff on Chinese imports, coupled with a 10% tariff on goods from other nations, could lead to increased prices in the US. Such inflationary pressures might compel the Federal Reserve to consider raising interest rates, thereby exerting additional pressure on equity markets and other currencies.
Moreover, a renewed trade conflict between the EU and the US could instigate a new wave of currency adjustments, potentially prompting the European Central Bank (ECB) to accelerate its rate cuts, further weakening the euro. Analysts warn that a second Trump term could push the euro towards parity with the US dollar.
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Dilin Wu, a Research Strategist at Pepperstone Australia, commented, “Considering Germany’s already fragile economic situation, a Trump victory could exacerbate the challenges, possibly deepening economic contraction or hastening ECB’s rate normalization efforts.”
Nonetheless, the recent strength of the dollar might not be solely attributed to the Trump Trade. Kyle Rodda, a Senior Financial Markets Analyst at Capital.com, noted, “We are witnessing a decline in the EUR/USD exchange rate, which, while primarily driven by the US economy’s outperformance compared to the eurozone, may also reflect the broader implications of the Trump Trade beyond mere deficit spending.”
The euro began its downward trend against the US dollar at the start of October, following the release of US job figures that exceeded expectations, reducing the likelihood of aggressive further rate cuts by the Federal Reserve. Additionally, the US reported a third-quarter GDP growth of 2.8% on an annualized basis, which further bolstered a “soft landing” scenario for the economy.
In either eventuality, a Trump win is likely to result in a substantial decrease in the euro’s value against the dollar, while a Harris win may provide a temporary rebound for the euro. However, the long-term trajectory will likely remain influenced by broader economic conditions.
Sectors Likely to be Affected Based on Election Outcome
A Trump victory would undoubtedly usher in increased uncertainties for European economies, particularly due to his stances on climate change, “America First” policies, and trade tariffs. He could revoke existing exemptions on European steel and aluminum tariffs, which would adversely impact the mining and industrial sectors. The “Trump Tariff” could particularly disrupt European automotive manufacturers, who are already facing economic challenges in export-dependent countries like Germany.
Conversely, a Harris victory may not provide comprehensive relief either, as she is likely to continue the Biden administration’s Inflation Reduction Act (IRA), which carries protectionist implications. The IRA includes substantial investments in climate and energy policies, with tax incentives for US electric vehicle manufacturers potentially disadvantaging their European counterparts.
Despite these hurdles, certain sectors, such as oil and gas, could see benefits under a Trump administration, given his likely inclination to ease emissions regulations. This shift would create favorable conditions for fossil fuel producers like Shell and BP. Rodda from Capital.com stated, “Trump is a proponent of fossil fuels and less supportive of renewable energy initiatives.” However, increased US oil production could further exert downward pressure on global energy prices, potentially squeezing profit margins for oil producers.
Finally, banking stocks could experience a boost from Trump’s deregulation policies. Rising inflation might lead to higher interest rates, thus enhancing banks’ net interest income. Conversely, a Harris victory might not instigate significant changes for the financial sector, as she is expected to maintain the existing regulatory framework.
