The article discusses the resurgence of the “Trump trade,” reflecting investors’ expectations around Donald Trump’s potential presidential victory. As election polls show Trump closely trailing Democrat Kamala Harris, financial markets are increasingly adjusting to this possibility. Key economic indicators such as the dollar, gold, and US bond yields are on the rise, fueled by anticipated fiscal and trade policies under Trump. However, experts urge caution, citing uncertainties around the election outcome and the potential for profit-taking.
(BFM Bourse) – The term ‘Trump trade’ describes market dynamics and investor expectations influenced by the policies proposed by the Republican presidential candidate. Recently, this phenomenon has gained traction as more investors are anticipating a potential victory for the former president.
The race for the US presidential election remains highly uncertain. Current polls, including one from the New York Times, suggest Republican Donald Trump is closely trailing Democrat Kamala Harris.
In the meantime, markets are gearing up for a possible comeback from the former president, as noted by financial experts. ‘Financial markets are leaning towards a Trump victory, evident in the rise of the dollar, gold, bitcoin, and US bond yields. The Republican’s campaign is significantly gaining momentum, and the polls have tightened, giving him an edge given his underestimation in prior elections,’ explained Christopher Dembik, an investment advisor at Pictet AM, on Monday.
‘With only a week remaining until the US election, predictions, betting odds, and financial markets are increasingly favoring a Trump win,’ added analysts from Deutsche Bank.
>> Check out our exclusive chart analyses, and gain insight into Portfolio Trading
Decreased Immigration and a Growing Deficit
The return of what is termed the ‘Trump trade’ is indicative of investor anticipation regarding the economic implications of the Republican candidate’s policies.
As noted by Quasar Elizundia, a strategist at Pepperstone, this ‘Trump trade’ hinges on several key factors. Firstly, a reduction in immigration could lead to increased labor costs and consequently, heightened inflation.
‘By limiting both legal and illegal immigration, the supply of affordable labor decreases, which may result in elevated labor costs. This, in turn, could trigger inflationary pressures as businesses pass these added costs onto consumers,’ the strategist elaborated.
Secondly, the market is factoring in a more expansive fiscal policy, including potential cuts to the corporate tax rate from 21% to 15%, which would likely elevate the US federal government’s borrowing costs.
Furthermore, the potential for increased tariffs would raise the cost of imports. ‘Trump is recognized for his protectionist approach, which includes the prospective imposition of additional tariffs on various goods,’ Quasar Elizundia noted.
‘Such tariffs increase the expenses associated with imported products, potentially leading to higher prices for US consumers and inviting retaliatory measures from other nations. This trade uncertainty can negatively affect global supply chains and contribute to market volatility,’ he added.
Bonds, Gold, the Dollar, and Bitcoin Show Strength
This situation has prompted significant movements across various asset classes. ‘The “Trump trade” encompasses market movements where equity indices rise alongside the dollar and interest rates, in anticipation of fiscal stimulus and regulatory reforms,’ summarized Alexandre Baradez from IG Markets.
‘The economic policies that Donald Trump aims to implement could support an inflationary environment in the US, hence the uptick in rates and the dollar,’ he commented.
The effects of the “Trump trade” are clearly observable in US interest rates. The yield on the 10-year US Treasury note surged from about 3.7% at the beginning of the month to 4.33% recently. Correspondingly, the dollar, influenced by bond yields and the Federal Reserve’s monetary policy expectations, appreciated by 2.6% against the euro in the past month.
‘The Trump trade resulted in higher yields, particularly at the long end of the curve, and a rise in the dollar index, although the yen has continued to strengthen against the greenback in anticipation of a potential decision by the Bank of Japan at the month’s end,’ remarked César Pérez Ruiz, Head of Investments at Pictet Wealth Management, last week.
Christopher Dembik connected the surge in gold prices to the ‘Trump trade’ as well. Generally, rising interest rates are not favorable for gold, given that it does not generate income like dividends; however, the present climate of uncertainty and geopolitical tensions may bolster demand for the precious metal.
‘Speculations about a Trump victory have heightened interest in gold, which has reached unprecedented levels. As the likelihood of his second term increases, markets are gravitating towards gold as a safe haven,’ noted Ricardo Evangelista from Activtrades in mid-October.
Additionally, Bitcoin has been positively impacted by the ‘Trump trade’, as the Republican candidate has been vocal about his support for the cryptocurrency. In September, he expressed his ambition for the USA to become ‘the bitcoin and cryptocurrency capital of the world.’
Are Investors Taking Profits?
Determining the impact on