Market Reactions to Trump’s Victory
US equities rallied following Donald Trump’s victory, while European markets declined:
- Diverging Impacts: US long-term rates rose, while European rates fell. US equities climbed, led by Small & Midcaps on expectations of government support for mid-sized businesses
- Volatility and Commodities: Equity volatility declined, while many commodity prices, including Brent, fell
- Political Context: On November 13, Republicans also secured control of the House of Representatives (218 to 209 seats), securing Trump the political trifecta, which opens a smooth path to implement his policies until the 2026 mid-terms
Euro Parity With Dollar?
- Currency strategists revise forecasts for the euro in the wake of the US election and coming up with a new call: a slide toward parity with the US dollar
- The changing landscape in the currency market follows anticipation that global trade restrictions could become a key pillar of Trump’s economic policy when he returns to the White House
Source: Bloomberg
Tight Spreads, Big Moves
US Corporate bond markets are experiencing significant activity, with very low spreads and heightened issuance following recent political and economic developments.
- Very Low Spreads: Investment-grade spreads and high-yield spreads have tightened significantly since the US elections, returning to very compressed levels
- Borrowing Surge: Over $50 billion in new corporate debt were issued post-Trump victory, as companies capitalize on favorable borrowing conditions with investors who, as in equities, currently have a clear preference for corporate America
- Investor Demand vs. Risks: Tight spreads reflect robust demand but they also mean less remuneration for the risk taken by investors
Complex environment for China
China faces a growingly complex environment for trade and investment, shaped by domestic challenges and rising international tensions.
- Peak China: Economic challenges, rapid aging toward a “super-aged society,” and soaring youth unemployment signal stagnation
- Less Open for Business: Ideological conformity, widespread censorship, and crackdowns on dissent hinder innovation and openness
- Centralized Power: Decision-making at the top discourages initiative among elites, reducing adaptability
- Securitization: Rising restrictions on due diligence, market intelligence, and supply chain audits complicate routine business practices due to fears of Western influence
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