Beneficiaries from his policies would, at face value, include executives and shareholders across corporate America, the energy sector, pharmaceutical companies, Big Tech, private prison operators (someone has to oversee the detention of the immigrants) and cryptocurrencies, where the Trump family recently launched its own crypto venture.
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At the macro level, the prospects for a Trump win would most likely show up in currency, bond and sharemarkets, with his policies likely to generate a big increase in government debt and a spike in US inflation that would drive up longer-term interest rates and the US dollar, while the tax cuts would be enthusiastically greeted by sharemarket investors.
The US dollar has strengthened more than 3.5 per cent this month against America’s major trading partners’ currencies. The yield on 10-year US Treasury bonds has increased from 3.7 per cent to 4.2 per cent, the term premium (the extra yield required to compensate for holding longer duration bonds) has blown out significantly, and the US sharemarket has risen 2.5 per cent over the same period.
The sharemarket’s response is interesting. Trump’s tax cuts and his deregulatory agenda would be positive for companies and their investors. But most economists agree that his trade and immigration policies would be inflationary and hit consumers, particularly low-income households, hard, and have a materially adverse impact on the US economy.
Yet maybe those are viewed as potential longer-term threats when set against the near-term benefits of his tax cuts.
Trump’s agenda would have a bigger impact on financial markets than Kamala Harris’.Credit: Michael Nagle
At a more granular level, energy stocks are up almost 3 per cent so far this month, while the shares in the two biggest private prison operators – Geo Group and CoreCivic – are up 21 per cent and 11.2 per cent, respectively.
Trump Media, the unprofitable social media company majority-owned by Trump and whose only significant asset is his brand, has demonstrated that it is a good barometer of his perceived electoral fortunes.
After last month’s disastrous debate with Harris, the stock initially plunged 14 per cent. This month it has more than doubled, restoring/adding around $US2 billion to his paper fortune.
Trump was once sceptical of cryptocurrencies, but his recent apparent conversion as he wooed the financial support of Silicon Valley tech billionaires and his own new financial exposure to crypto assets has investors enthused about the prospect of having him back in the White House.
This month, Bitcoin’s price is up 5.4 per cent and the overall crypto market has gained about 4.7 per cent.
The flow-on effects from Trump’s tax and trade policies to global markets will be most obvious in currency markets.
The combination of the higher inflation caused by his tariffs and the blow-out in US government debt as a result of his tax policies will force US interest rates up sharply, which in turn will strengthen the US dollar.
His policies would also weaken other countries’ economies and currencies. China and other economies in its sphere of influence will be heavily impacted, but the European Union and other US trading partners will also be damaged. Both the euro and yuan have been weakening, although that could be attributable to their weak economic growth relative to the US.
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Even those countries, like Canada and Mexico, which have a free trade agreement with the US, would be affected. Mexico – a low-cost manufacturing base which has attracted major US companies and is a backdoor to entering the US economy – in particular.
It’s no surprise that, as Trump’s prospects have seemed to improve after the debate debacle, the peso has weakened significantly. In the past fortnight it has depreciated against the US dollar by about 3.5 per cent. It’s down about 15 per cent for the year.
There are, of course, potential Harris trades. Her policies would be good for small businesses, childcare companies and housing developers, but her tax hikes would hit large companies, and she wouldn’t be good for pharmaceutical stocks.
She would also increase US government debt, but by not nearly as much as Trump. Her policies would probably have a modestly positive impact on US economic growth, and she wouldn’t start a trade war with America’s allies, so a Harris presidency wouldn’t have the same macro or international dimensions as Trump’s.
The momentum the Trump trades appear to have in financial markets doesn’t, of course, mean that he will win the election. It looks like a tight race and, from past experience, there could be some explosive developments in the final days of the campaign.
Apart from the betting markets, where there seems to have been a couple of plunges, and the big spike in Trump Media’s price, most of the bets being made by investors seem to be reasonably conservative. Broadly, however, they do predict a Trump win.
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