(Reuters) - The dollar surged and U.S. stock futures hit record highs as investors bet on lower taxes and higher interest rates as Republican Donald Trump was elected U.S. president four years after he was voted out of the White House.
MARKET REACTION AT 1008 EST
* The S&P 500 (SPX) rose 1.7%, the small cap Russell 2000 soared 4.4%
* The yield on the 10-year U.S. Treasury note hit a four-month high of 4.479%, and was last at 4.451%; the 2-year yield rose to a three-month high and was up 7.7 basis points to 4.273%.
* The U.S. dollar index was up 1.7%
* Bitcoin hit a record high of $75,389
* Europe's STOXX 600 down 0.6%
COMMENTS
MATTHEW RYAN, HEAD OF MARKET STRATEGY, EBURY
"So far, we would perhaps argue that the moves in the FX market have been somewhat contained relative to expectations from some quarters. It is very early days, however, and we would expect volatility to remain elevated in the next few trading sessions, as investors position themselves in anticipation of another Trump presidency. This could mean fresh downside in risk assets and another bout of dollar strength, particularly should the Federal Reserve hint to markets at upcoming policy meetings, potentially on Thursday, that the outcome of the election may slow the pace of the Federal Reserve cutting cycle.
“For now, of course, nothing changes. President Biden will remain in the top job until early next year, and we will have to wait until 20th January 2025 for Trump’s inauguration. His rhetoric in the meantime will be closely watched by market participants. Commentary that doubles down on his tariff threats and tax cuts could conceivably exert some additional upward pressure on the greenback, as investors pencil in weaker global growth and a higher terminal Federal Reserve interest rate.”
ANDRZEJ SKIBA, HEAD OF BLUEBAY U.S. FIXED INCOME, RBC (TSX:RY) GLOBAL ASSET MANAGEMENT (emailed comments)
“These election results will be really bad for fixed income and can unwind a lot of the bullishness in fixed income. Trump keeps openly telling people that he will increase tariffs not just on China but with every trade partner. We’re talking 10% tariffs across all global partners. This is a big deal because this could add 1% to inflation. If you add 1% to next year’s inflation numbers, we should say bye to rate cuts. With higher tariffs, the Fed will not be in a position to cut rates even if the economy is slowing down- and that is a toxic mix for fixed income.
JACK MCINTYRE, GLOBAL FIXED INCOME PORTFOLIO MANAGER, BRANDYWINE GLOBAL INVESTMENT MANAGEMENT
"The initial reaction is not surprising. This was sort of a 50-50. The market is correctly saying we might see a red sweep. Even if it's a narrow Republican majority (in the Senate), somewhere out there there are Republicans that are fiscally conservative.
"You're going to get some version of a repricing (of Treasuries) just by nature of the math. It's just a question of how long does it last. You're seeing the initial damage today.
"Volatility is important here. I suspect we could see a decline in overall volatility.
"We're hesitant to buy or sell bonds. We're looking at that 30-year auction today as a barometer of demand. I'm sitting on my hands and seeing how things play out. Treasuries have had a pretty good sell-off coming into this. Ultimately you're making a bet that there is going to be some fiscal responsibility coming out of the Trump administration."
DAVID BAHNSEN, CHIEF INVESTMENT OFFICER, THE BAHNSEN GROUP, NEWPORT BEACH, CALIF.
"For now, investor sentiment is pro-growth, pro-deregulation, and pro-markets, as seen in the overnight market action. There is also an assumption that M&A activity will pickup and that more tax cuts are coming or the existing ones will be extended. This creates a strong backdrop for stocks."
"Financials and Energy are the obvious beneficiaries of Trump's victory amid hopes of deregulation and a greater focus on U.S. energy independence. There may even be other sectors that benefit from Trump's victory, such as technology stocks, especially if the Federal Trade Commission (FTC) is knocked down a peg. We need to see personnel and cabinet appointments in the week ahead to get firmer ideas around all this, as personnel is policy."
ELLIS PHIFER, MARKET STRATEGIST, RAYMOND JAMES
"Both parties are going to spend no matter what. This Treasury sell-off is overdone. It's kind of a knee-jerk reaction.
"(In terms of Fed policy) none of the presidents have been silent on rates. It's going to be a '94-'95 scenario. They used this term 'recalibrate'. It reminds me of a post-'94-'95 period where the Fed was tweaking back and forth to avoid a recession.
"Trump's win is equally as surprising as in 2016. I know all the votes aren't in, but his current lead in the popular vote is to me the bigger surprise.
"I think we're all watching (the House elections) very closely. It's always a critical component as markets tend to like gridlock. They like it as business continues as usual.
JOHN FLAHIVE, HEAD OF FIXED INCOME, BNY WEALTH
“Inflation might be stickier than maybe would have been without this political landscape, but I don’t see us returning to a post pandemic flare up … It might suggest we take longer or we may not get to the actual Fed’s target of 2%, but … the bias is going to continue to be toward cutting”
HENDRIK DU TOIT, CEO, NINETY ONE:
“It’s a completely new world, and we need to understand that."
“He (Trump) has a massive endorsement and will move much faster than before. The market will price that in very quickly. What’s really important here is the markets like clarity, and they have that.”
ANDREA SCAURI, SENIOR PORTFOLIO MANAGER, LEMANIK, LUGANO:
"With Trump's victory, you'll get much stronger fiscal policies compared to what might have been under a Democratic administration. This will have repercussions for inflation, and you can see that already with this morning's rise in Treasury yields."
"So, who benefits from all of this? I think old-economy sectors, like oil, drilling, mechanical, and heavy industry, will benefit. And probably also tech, as the American consumers will have more money in their pockets, they might spend it on new phones, TVs, or invest in the stock market."
EMMANUEL CAU, HEAD OF EUROPEAN EQUITY STRATEGY, BARCLAYS, LONDON:
"You have renewables, auto sector, some of the tariff stocks and China-exposed names which are lagging, so even though the market is going up, you are seeing some discrimination based on some of the Trump policies."
"Roughly speaking, you have renewable and tariff trade names underperforming, then you have your U.S. consumer and dollar plays doing better. That seems to be the story now."
EMMANOUIL KARIMALIS, MACRO RATES STRATEGIST, UBS, LONDON:
“We think that given Trump’s key elements of his agenda - tariffs on China and the rest of the world - the market is just thinking this would obviously have an impact on China, and Europe is a bit more sensitive to China. That would probably have an impact on growth, so European rates (bonds) are rallying.”
“U.S. rates have obviously sold off given expectations of more fiscal loosening in the U.S., and probably slightly higher inflation due to tariffs.”
“The fact that European rates have reacted sharply might be a little bit overdone in my view, because we don’t expect the ECB to shift their expectations quickly.”
DAVID ALLEN, PORTFOLIO MANAGER, PLATO GLOBAL ALPHA FUND, SYDNEY:
"Markets absolutely crave certainty, if we'd had a long contested result you would have seen price swings to the downside in major markets...Trump's victory was also somewhat priced in at the margins"
"I do think Trump 2.0 will be different from Trump 1.0... I don't think Trump was even expecting to win the first time and was less prepared. This time is different, I expect him to push through a lot of fast major legislation within the first 100 days, so hold onto your hats."
ROGIER QUAEDVLIEG, SENIOR U.S. ECONOMIST, ABN AMRO (AS:ABNd) RESEARCH, AMSTERDAM
"Given the inflationary expectations associated with Trump’s economic and fiscal policies, we expect U.S. rates to continue rise across the yield curve. We anticipate that the market will further retrace expectations for Fed rate cuts next year due to increased inflation projections, while also pricing in higher term premiums.
"However, our economic analysis suggests that the full implementation of Trump’s policies – especially the tariffs – will eventually weigh heavily on the US economy."
"Trump’s universal tariffs plan is also expected to have a substantial impact on the already fragile euro zone economy, while the inflationary effects for Europe will be more limited. This could trigger an even more accelerated rate cutting cycle path from the ECB and will likely lead to a greater divergence between the US and European policy rates."
ANDRZEJ SZCZEPANIAK, EUROPEAN ECONOMIST, NOMURA, LONDON:
"In summary: It's bad news for Europe."
"Trump winning means tariffs which will adversely affect growth in Europe. The European Commission is expected to retaliate like-for-like, which could mean higher inflation in the euro area – or, as manufacturing firms' pricing power is so diminished, as we have been flagging for some time, firms could be forced to absorb these higher costs, which in turn may result in some firms shuttering and unemployment rising, thus weighing more heavily on growth."
KEN PENG, HEAD OF ASIA INVESTMENT STRATEGY, CITI WEALTH, HONG KONG
"A lot of this is based on investors' view that Trump would cut taxes or at least keep tax rates low. Now that it's likely to be looking like a red sweep - additional cuts are possible.
"Deregulation is another major positive for the economy and markets, particularly for the financial, energy and tech sectors. The negatives are tariffs. That's going to be negative for global growth, you know, particularly in China, Asia (and)Europe... you see inflation expectations rise.
"I think the market is currently still just enjoying the positive aspects of a red sweep, but I think as time passes, you are likely to see the risks ... get priced in."
NAKA MATSUZAWA, CHIEF MACRO STRATEGIST, NOMURA, TOKYO:
"I think the market was not yet ready for a 'red sweep'... if the 'red sweep' materialises, 10-year yields for U.S. Treasuries could go up to as high as 4.50% and above. Dollar/yen could go over 155. They're kind of half pricing in that level right now.
"If Trump can pass tax and spending bills first, then he doesn't have to rush for the hardline policies against China, which come rather later. If Congress is controlled by Republicans Trump can prioritise economic stimulus measures."
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE:
"With Trump, market volatility is likely to pick up, so trading-wise, it does open up opportunities. The volatility comes from uncertainty surrounding how he intends to follow through on some of his campaign promises.
"Right now the markets are focusing narrowly on the prospect of tariffs, because it is the easiest lever to pull directly under a presidential executive order, but we've seen between 2016 and 2020 other levers that can be pulled to contain China.
"From this perspective, I think a foreign investor is likely to position more defensively towards China-focused risk."
WONG KOK HOONG, HEAD OF EQUITY SALES TRADING, MAYBANK, SINGAPORE:
"Carnage in HK/China hasn't really materialised because traders and investors are still awaiting any possible (stimulus) announcements.
"As for the next four years in general, for a start we may need to download Truth Social app."
GARY NG, SENIOR ECONOMIST, NATIXIS, HONG KONG:
"As Trump's policies in trade tariffs and tax cuts may lead to higher inflationary pressure and a wider fiscal deficit, the Fed may be less dovish than before.
"Therefore, the yuan can face higher pressure."