European stock markets are unexpectedly benefiting from Donald Trump’s election victory in the United States. What forces are behind these stock market gains? And how sustainable is that profit?
The Bel-20 gained almost 2 percent shortly after the opening bell, with just over 1 percent gain left shortly before noon. Big dollar earners, such as the chemical company Syensqo and the pharmaceutical companies UCB and Argenx, are leading with profits of 2 to 4 percent. Syensqo was previously on the rise, after the announcement of a restructuring that would cost 300 to 350 jobs. In the rest of Europe, too, it is mainly companies with many activities in the United States that are looking to make a profit.
The US dollar is steaming strongly higher, now at 1.08 dollars per euro, which mathematically leads to higher incomes in euros for European companies that have a lot of turnover in the United States. However, for a long time it looked as if European shares would fall, because Donald Trump’s economic plans are not really favorable to Europe.
In particular, the higher taxes on imports of products and services from the rest of the world could hamper this. Although it sounds here and there that an open trade war is easier to fight than Joe Biden’s more subtle game with subsidies.
We collected responses from economists, strategists and analysts for you.
Volatility in the markets
Luc Aben, Van Lanschot’s chief economist, looks on with some surprise as sentiment on the European stock markets has completely changed. In advance everything pointed to a red opening, with falling futures and losses for the Chinese stock markets, but after the first trading hours the European stock market indices are showing a profit. The futures point to a positive opening for Wall Street soon.
According to James Knightley, ING’s chief economist for the United States, investors were already feeling the downturn. “The polls had predicted a close race, but the financial markets seemed convinced of this outcome for some time. American shares, the dollar and interest rates on American debt have already risen sharply in recent weeks.”
Aben: “The US ten-year yield will rise by 11 basis points, as expected, because inflationary pressure threatens from Trump’s policies. This could lead to reluctance on the part of the Federal Reserve to ease monetary policy. In that context, the dollar rises against the euro. The oil price is falling because Trump wants to increase American production. The gold price has also fallen slightly.”
Tax cuts
Knightley: “Right now, Republicans are moving toward one clean sweepwinning the presidency as well as the majority in the Senate and the House of Representatives. Only if the Democrats still win in the House of Representatives will it become more difficult for Trump to implement his planned tax cuts for companies. The dollar is on its way to 1.05 dollars per euro in the short term. Parity will have to wait until later in 2025, when the power of the protectionist bombardment becomes clearer.”
George Saravelos, strategist at Deutsche Bank, also aims for 1.05 dollars per euro by the end of the year. “A unified US government is the best-case scenario for a strong US dollar. The more Trump will emphasize in his rhetoric and prioritize lower taxes and less regulation in the agenda, the more positive the impact on risky investments, such as shares. The reverse is true for the increase in trade tariffs.”
Clarity
Tom Simonts, senior financial economist at KBC, thinks that investors are relieved that there will be clarity soon. “Based on what we know now, it appears that Trump may return to the White House. But, and more importantly, the Senate and House would also go to the Republicans in what would be a ‘red sweep‘ is mentioned. From that perspective, the first reaction is that risk assets continue to gain ground, but also that US interest rates are going through the roof.”
Simonts also goes back to the latest macroeconomic figures. “Yesterday it also emerged that activity in the US services sector surprisingly rose to the highest level in more than two years in October. Higher growth equates to higher interest rates, but markets nevertheless continue to target a 25 basis point rate cut from the Federal Reserve next Thursday. And then again in December.”
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