Stock markets sometimes have reasons that reason ignores. This Wednesday, November 6, while Donald Trump's victory is confirmed, all stock indices are on the rise. In Europe, the Cac 40 (+ 0.72%) opened in the green, the same for the German Dax index (+ 0.61%). Same observation in Japan with the Nikkei (+ 2.61%). “A little 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,” notes Alexandre Baradez, head of market analysis at IG France.
The US 10-year rate (yield on the ten-year US Treasury bond) 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 “Trump Trade”, this market bet on a return of Donald Trump to the White House”adds the analyst from the financial company IG France.
Because Trump's program will cost the federal budget dearly, fuel American inflation and weigh on their national public debt. But in a globalized speculative market, investors are crazy about government debt. It may seem crazy but it is an investment that seems safe for investors. A state, like the United States, cannot go bankrupt. So with the election of Trump, the markets are delighted to learn that the level of treasury bonds issued by the world's leading economic power will increase. And this, in the queen currency, the dollar. Even if all this remains very anticipated and volatile.
A bitcoin record last night
Just like the cryptocurrency market, where bitcoin reached a new record overnight by crossing the 70,189 euro mark. A reaction from bitcoin holders, “which is a libertarian population who saw in Trump an ally”according to Jérôme Ghez, professor of economics at HEC. For good reason, Trump promised to make the United States “the world capital of bitcoin and cryptocurrencies” and wants to relax the regulatory framework for cryptos. “In a context of economic uncertainties, cryptocurrencies have become a safe haven”adds Jérôme Ghez.
“Even if Bitcoin broke a new record this morning, we can wonder about 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…”adds Christopher Dembik, investment strategy advisor at Pictet AM.
Euro shot
Another effect of this result of the American election, the dollar has also seen its index increase by 1.6% in recent hours. Highest level in four months. This is accompanied by a fall in the euro. This effect on the currency is explained by one of the flagship measures of the Trump program which provides for a strengthening of customs duties.
In addition to this protectionist policy which aims to establish a universal customs tariff of 10% and to impose a 60% increase in taxes on all Chinese imports, the American markets are anticipating Trump's taste for printing money.
This will widen the American deficit and could also increase inflation. But as the American central bank (the Fed) must decide this Thursday, November 7 on an additional rate cut of 0.25%, this may give a positive economic outlook. And partly counterbalance the effects of Trump's spending budget policy.
“It will be positive for the American stock market”
Moreover, “ a Trump presidency will be synonymous with lower taxes for American companies, with corporate taxes which could fall to 15%. The complete opposite of what the Democratic candidate wanted to do. If the effect is similar to the reduction decided in 2017 under the first Trump presidency, this should accelerate business investments… particularly in AI! We can therefore venture to consider that this will be positive for the American stock market and that the effect could even be amplified by the reduction in Federal Reserve rates which should not be hampered, in the immediate future, by the victory of the Republican »adds Christopher Dembik, investment strategy advisor at Pictet AM.
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