US STOCK futures, the greenback and various Asian indexes all rallied in anticipation of a second term by Donald Trump as US president.
With all voting stations closed across the US on Tuesday (Nov 5) night, the 78-year-old Republican candidate has wasted little time in taking a commanding lead over his Democratic opponent Kamala Harris.
The latest tally from CNN gave Trump 276 delegate votes (as at Wednesday 7pm, Singapore time) in the Electoral College – more than the 270 needed to win the presidency. Sixty-year-old Harris has secured a respectable 219 votes.
Trump was successful in several of the seven swing states, including Georgia – a state that he narrowly lost four years ago to Joe Biden – North Carolina and Pennsylvania.
On Wednesday at about 2 pm, the chances of a Trump victory rose to above 90 per cent on numerous prediction-market websites, including PolyMarket, where more than US$3 billion has already been wagered on the outcome of the election.
The US dollar index was up 1.5 per cent. The rise in the greenback reflects Trump’s vow to impose blanket tariffs on goods coming into the US. That kind of protectionist policy would immediately push up product inflation and force the US Federal Reserve to tighten interest rates again at the end of their meeting on Thursday this week.
Extending tax cuts
The free-trade policies that have been a cornerstone of American economics for generations often have the effect of weakening a currency because so much of it goes overseas. The US trade deficit recently rose to a 30-month high as importers stockpiled goods ahead of US port strikes.
S&P 500 futures rose by more than 1 per cent on Tuesday night in the US, likely bringing the broad index to record highs at the open on Wednesday.
If he wins another term in the White House, Trump has pledged to extend the tax cuts he established in 2017, which were due to “sunset” in 2025.
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The extension of the tax cuts will be a boon to most Americans, but especially the rich because of the proportional nature of income tax rates.
Corporate tax cuts, which Harris would have allowed to expire, will fatten corporate profits. Trump has also promised to keep environmental regulations loose enough to maintain the US lead as the world’s largest oil producer.
His combination of big spending, inflationary tariffs and tax cuts do not impress the more sober Treasury market, however. The yield on the 30-year Treasury bond rose to 4.6 per cent, testing 2024 highs.
The yield on the 10-year note rose by 13 basis points, a significant move in a market where moves are often measured in hundredths of a percentage point.
“Bonds are to be closely watched if they keep moving like this,” said Lorenzo Di Mattia, the manager of hedge fund Sibilla Global Fund. Typically, a prolonged spike in bond yields will frighten equity markets and cause a selloff, he said.
In anticipation of a Trump victory, the price of bitcoin also rose to a record high of US$75,060 on Wednesday. Trump courted bitcoin investors during his campaign, promising to keep regulations on the digital currency loose and to promote wider adoption.
Shares of Trump Media & Technology, the owner of his social network Truth Social, soared in after-hours trading on Tuesday, gaining 10 per cent. At the close, Trump Media was worth about US$7 billion, an astronomical value given its paltry US$1 million in quarterly revenue.
“Small caps look to run,” said JD Joyce, president of Texas-based financial advisory Joyce Wealth Management, noting that small caps are typically geared to domestic economic growth. “A Trump win was quasi-priced in, based on the recent rally” he added.
One money manager said lax finance regulations will give small lenders more room to manoeuvre.
“We expect deal activity to rebound dramatically as interest rates decline and regulatory burdens ease,” said Neal Wilson, the co-chief executive and co-chief investment officer of EJF Capital.
