The morning after

In summary:

• Trump has been elected as the 47th President of the United States of America.
• The Republicans retake the Senate.
• It is unclear at present which party will take control of the House.
• It looks like Trump has also won the popular vote.

This is undoubtedly a strong mandate.

Chart 1. Latest US election results¹

Source : 270toWin. Data as at 06 November 2024.

Some early observations as follows:

• US equities have been in buoyant mood over the past few weeks, including on election day. This is consistent with markets pricing a Trump win.

• Futures are up strongly, led by small caps. At the time of writing the Russell 2000 e-mini future is up over 5% while the broader S&P500 mini future is up over 2%.

• Bond yields have moved decisively higher in reaction to larger expected budget deficits under a Trump administration. The yield curve is now positively sloped from two years out, signalling greater confidence in economic expansion over the next 12 months. Market anticipation of Trump’s victory helps explain the muted market reaction to Friday’s weak nonfarm payroll numbers.

• At the same time, the US dollar has rallied in sympathy with higher bond yields. Bitcoin has also rallied as part of the general risk-on trade and potential regulatory changes affecting the crypto sector.

• Chinese equities sold off overnight in expectation of more tariffs on US imports from China. While Trump has talked about applying tariffs of 60% on Chinese produced goods, the reality is that they will likely be of the order of 20% to 30%. China is expected to announce a frontloaded stimulus package later this week, with up to CNY2trn in off-budget central government debt for 2025 to try to offset the negative tariff impact, and potential for local government debt refinancing to reinvigorate local government finances and diminish the headwind from the ongoing property sector debt overhang.

• In the excitement of the election, Trump’s legal challenges have been little talked about over recent weeks. However, he faces sentencing on 26^th November for his conviction in New York on 34 felony charges related to falsifying business records. It is possible that the US Supreme Court – which is loaded with appointees from Trump’s previous Presidency – will intervene.

• Gold has inexplicably strong this year but has sold off a bit overnight and this morning. A part of the recent strength in the gold price could have been associated with election uncertainty and the widely held belief that the result would be close and contested. In practice, the definitive election result has eliminated a major source of uncertainty, helping to explain the gold price sell off.

• Ukrainian President Volodomyr Zelensky will have been watching the election result closely. Trump has previously signalled that, if he were to be elected, he would quickly bring an end to the conflict in Ukraine by holding negotiations with Ukraine. This helps explain why Ukrainian forces have invaded parts of Russia close to the Ukrainian border, something that the leadership no doubt hopes will act as a bargaining chip in negotiations with Putin. Whilst there is not expected to be any major market impact, there are four dimensions that matter: (i) an end to war would typically be associated with a reduction in risk premia that would be good for risk assets (ii) if Russian oil and gas starts to flow more freely onto global markets that would put further downward pressure on energy prices (iii) the impact will depend on the extent to which sanctions stay in place or are relaxed (iv) there is a risk that Putin will feel emboldened which might encourage Russia to become more bellicose.

• See our InFocus note “Sector playbook ahead of the US Presidential election”² for more information regarding our market views following a Trump win.

¹ Results as at 05:18 EST
² https://www.efginternational.com/insights/2024/sectors_playbook_ahead_of_the_us_presidential_election.html