As of this writing, Republicans have already won the Senate and are on track to win the House of Representatives as well. A real red wave therefore, Donald Trump having also won the popular vote, a first for a Republican candidate since 2004.
The effects on the markets are clearly visible, the American 10-year rate reached 4.47% early this morning, its highest level in 4 months, knowing that it was only moving at 3.60% in mid-September. A rise due not only to good American macroeconomic figures but also to the “Trump Trade”, this market bet on a return of Donald Trump to the White House.
This “Trump Trade” had deflated a little in the days preceding the election but has made a full comeback in recent hours with the Dollar Index climbing 1.6%, reaching, like the American 10-year rate, its highest level in 4 months . The Dollar Index has appreciated by more than 5% since the beginning of October, which translates this morning into a fall in the euro to its lowest level since the end of June at $1.07.
Futures on American indices are also up significantly by 1.8% for the SP500 at 8:30 a.m. and by more than 4% for the Russell2000, the small and mid-cap index.
However, we can legitimately wonder about the potential upside in the coming hours and days for the American stock indices, knowing that the “Trump Trade” observed in September and October was an anticipation of this victory of Donald Trump. A “sell the news” is not impossible in the coming days, a fairly common phenomenon on the markets when an event has already been worked on in advance by market operators.
The question of the attitude of the Federal Reserve also arises as the decision is expected tomorrow evening. An additional rate cut of 0.25% is anticipated by the markets but Jerome Powell's statements will be carefully scrutinized because if Donald Trump, supported by Congress, pursues an expansionary budgetary policy like that of his predecessor, the risk that inflation slow to return to 2% is very real, or even that inflation rebounds.
It is worth remembering that core PCE inflation, the Fed's preferred measure, is still running at 2.7% and has not made further progress towards the target in 4 months.
This surge in rates and the dollar has consequences for gold, which is losing ground this morning, getting closer to $2,700, its lowest level in 3 weeks. Concerning Bitcoin, even if it broke a new record this morning, we can also question the risk of correction in an environment of recovering rates and a strong dollar. And this reasoning can also be extended to the American stock markets…
Somewhat surprisingly, it must be admitted, futures on European indices are holding up rather well, for the moment, in the face of this indisputable victory for Donald Trump.
