The financial markets welcomed the return of Donald Trump to the White House on Wednesday. In their initial reactions, economists and experts expect a boost in the world’s largest economy, but at the cost of a rebound in inflation.
While the Senate has swung to the Republican side, with the race for the House of Representatives remaining tight, a victory for Donald Trump’s party would give it free rein. “If the Republicans win both houses of Congress and the White House, we expect a more dynamic American economy, with growth above potential and inflation above the Federal Reserve’s objective,” anticipates Samy Chaar, chief economist at the Lombard Odier Bank.
Donald Trump’s economic program, focused on tax cuts and reductions in regulation, could boost the profits of American companies and support the stock market. However, this policy raises concerns about the deficit and inflation. Furthermore, the “America First” approach could increase geopolitical tensions, particularly with China, and complicate transatlantic relations, according to John Plassard of Mirabaud Banque.
In any case, so far, markets are following the same scenario as in 2016 during Donald Trump’s victory against Hillary Clinton: stocks are rallying, while long-term US Treasury bonds are being sold off in anticipation of fiscal expansion,” commented Gordon Shannon, portfolio manager at TwentyFour Asset Management.
On the bond market, where debt already issued is traded, the interest rate on 10-year American government bonds jumped to 4.44% around 10:55 a.m. Wednesday, compared to 4.27% at the close on Tuesday, and that maturing in two years rose to 4.26%, compared to 4.18%.
This is a sign that the market expects “stronger growth and perhaps higher inflation”, a combination which could “slow down, or even stop”, the rate reductions planned by the American central bank (Fed ), underlined Stephen Dover, director of the Franklin Templeton Institute. The next meeting of Fed officials begins this Wednesday.
Certain industries, such as fossil fuels and small caps, are well-positioned to benefit from Donald Trump’s presidency. “A policy more favorable to cryptocurrencies and a revival of traditional industries promise to reshape the economic landscape,” adds Samy Chaar.
>> Follow this election minute by minute: Donald Trump wins the election and returns to the White House for a second term
The dollar is soaring
The New York Stock Exchange opened sharply higher on Wednesday, driven by investors satisfied with Donald Trump’s victory. (Lire framed)
The dollar is soaring against the majority of other currencies. On Wednesday, it gained 1.66%, to 1.0751 dollars per euro. The Dollar Index, which compares the greenback to a basket of currencies, reached a peak since the beginning of July, at 105.311 points.
Bitcoin soared 6.86% to $73,905, after hitting a new absolute record at $75,371.67, boosted by the prospect of regulatory relaxation and tax measures favoring the cryptocurrency sector. .
Conversely, gold, the Swiss franc, so-called safe haven assets, which had progressed significantly in recent weeks against a backdrop of tensions and uncertainty, fell this Wednesday morning.
Pricing risks
The return of the 78-year-old Republican to the White House also carries price risks. “Donald Trump has in fact promised to tax imports at an average of 10%, compared to 2.5% today, which could have significant consequences on European (and Chinese) growth.”
China and Europe, the main targets of these tariff policies, risk reacting with retaliatory measures, predicts Arthur Jurus. These trade tensions (read framed) could also weigh on emerging markets, particularly those in Asia, where growth could be impacted by 0.8% on average if the tariff measures are fully implemented, calculates the investment director of Oddo BHF Switzerland.
Still, assessing the economic consequences of Donald Trump’s proposals poses a problem, believes Bernd Weidensteiner, Commerzbank expert. Certain projects should have difficulty resisting “contact with political reality”.
“Bad news for the economy in the long term”
Patrick Zweifel, chief economist at Pictet Asset Management, agrees. According to him, Trump’s policies, which are “a classic policy of a populist agenda”, are good for the economy in the short term, by supporting growth. “But it’s bad news for the economy in the long run.”
The expert gives three reasons to explain this. By reducing immigration, the number of workers and consumers falls, which impacts production, he explains. In addition, “an increase in protectionism will tend to isolate the country, which will reduce demand for its own exports and therefore reduce production capacity there too,” he continues. Finally, the increase in the public deficit, through tax cuts and increased spending, could increase debt and interest rates, thus slowing down private investment, he concludes.
>> Listen to the full interview with Patrick Zweifel:
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