Nevertheless, given that Trump has been elected president, it is prudent to re-evaluate and re-strategisize the approach across asset classes. Get ready to follow Twitter (Now X) closely. Get ready to wake up to surprises. Brace yourself for the return of volatility.
Trump’s win certainly means a stronger Dollar against currencies of countries that could be affected by tariffs. Given that there will almost certainly be the imposition of tariffs on imports, the dynamics of how the US trades with the rest of the world will change.
We are seeing Dollar strength against the Yuan, Mexican Peso, and Canadian Dollar today and this could continue. Adjustments in these currencies will drive movements elsewhere as well.
For example, a weaker Yuan will make the Reserve Bank of India (RBI) more tolerant of Rupee depreciation. We will have to wait and see as details and clarity emerge in due course but the possibility of tariffs will keep traders on the edge.
The Trump victory in the US elections is negative for the bond markets. The possibility of lowering corporate taxes could potentially leave a void in government finances. The nervousness is clearly reflected in bond markets last week with the 10-year rising another 20bps to 4.47%. Given the overall inflationary impact of Trump’s measures, there may also be a repricing of the overall Fed rate trajectory and this is again positive for the Dollar. We could see majors remain under pressure against the Dollar. EUR/USD is gravitating towards the lower end of the 1.06-1.13 range it has been in for some time now.
We still expect the range to hold. However, the outcome is definitely a setback as far as the build-up of momentum on the upside in crosses is concerned.
We see the outcome as being positive for equities due to the prospect of corporate tax cuts. Big oil will get a fillip given that climate change action could be deprioritized. Infrastructure as a sector should do well. Manufacturing too could benefit from Trump’s protectionist policies.
As far as domestic equities are concerned, the outcome could be negative for export-oriented sectors, especially IT. However, overall a big risk event is out of the way and we expect domestic and foreign flows into domestic equities to resume.
Base metals are doing well while precious metals have come off today. Brent is lower given that supply could rise under Trump given his views on fracking. His return could also mean lowering of geopolitical risk premium.
(The author is Founder and CEO IFA Global)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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