This morning we in the UK have woken up to the expectation of a second Presidential term for The Donald as he has 267 of the required 270 electoral college votes as I type this. Along the way it has been a bad election for the MSM as they have pushed the idea of it being a tight election and indeed in more than a few cases a Kamala victory. They seemed to forget how unpopular she was four years ago when she tried to be the Democratic candidate them.
But as ever let is concentrate on the economics and if we start with markets we can open with something that The Donald will love.
Stock futures rose sharply in premarket trading as investors bet that former President Donald Trump will retake the White House.
Futures on the Dow Jones Industrial Average soared 1,133 points, or about 2.7%. S&P 500 futures gained 2.4% and Nasdaq 100 futures climbed 1.8%. The last time the blue-chip Dow jumped more than 1,000 points in a single day was in November 2022. Futures for the small cap benchmark Russell 2000 jumped 5%. ( CNBC)
In his first term as US President The Donald was always happy to cheer higher stock markets and on a personal level he will be especially pleased about this.
$DJT stock is up 40% in the 24-hour market. (@unusual_whales)
In a way it is a sign of the times.
In $DJT today, 41k of the Jan 70s call traded at an average price of 7.14. 29mln in premium was spent…that’s 11 times the YTD revenue for the company. Good stuff. ( @Alpha_Ex_LLC)
It combines a meme stock with my old occupation as an options trader and there are a couple of other themes. Yesterday trading volume was three quarters of the whole UK stock market and very unusually for a vehicle involving The Donald it is very cash rich.
The US Dollar
We have seen a pretty clear case of “Holla Dolla” overnight and the most obvious is against the Japanese Yen which fell over two big figures to 154. As an aside that puts the Bank of Japan under more pressure and is a good day for the Carry Trade which many were declaring as over.
the dollar posted its biggest gain against major currencies since 2020 ( Bloomberg)
The Euro was also hit hard with a 1.5% decline whilst the UK Pound £ did relatively well with a 1% decline to around US $1.29.
We can bring in the first major economic theme here via Reuters.
Trump has floated the idea of a 10% or more tariff on all goods imported into the U.S., a move he says would eliminate the trade deficit.
Now there are several issues here as I pointed out in response to a question to my podcast number 297. Yes economics 101 suggests a higher US Dollar in response to an improved trade position. But that is only the initial move as other countries are likely to respond in a tit for tat way. One area where the US is relatively strong is that it is a net importer bit that does not mean it does not have plenty of exports tariffs can be applied to by others. One thing we can be sure of is that someone from Mexico has upset him and he hasn’t forgotten it.
He has threatened to impose a 200% tariff on some imported cars, saying he is determined in particular to keep cars from Mexico from coming into the country. (Reuters)
US Bonds
These have also been a driving force for the US Dollar rally.
U.S. 10-YEAR TREASURY YIELD JUMPS TO 4.40% AMID TRUMP WIN ( Investing.com)
Actually they have pushed a little higher since to 4.44% making an upwards move of 0.15%. So the US Dollar is more attractive on a yield basis and we see why the Japanese Yen ( where interest-rate rises have stalled) and the Euro where a series of interest-rate cuts are expected have been especially hit,
The issue here was summarised by Shirley Bassey many years ago.
The minute you walked in the joint,
I could see you were a man of distinction,
A real Big Spender,
Good looking, so refined.
Say, wouldn’t you like to know what’s going on in my mind?
Although in the case of The Donald it is usually a case of spending relative to taxation if his first term is any guide.
He has pledged to keep in place a broad 2017 tax cut that he signed while in office, and his economic team has discussed a further round of individual and corporate tax cuts beyond those enacted in his first term.
Trump has pledged to reduce the corporate tax rate from 21% to 15% for companies that make their products in the U.S.
He has said he would seek legislation to end the taxation of tips and overtime wages to aid waiters and other service workers. He has pledged not to tax or cut Social Security benefits. ( Reuters)
Plus whilst I am sure the Trump tariffs will generate tax revenue these things rarely reach the heights promised and sometimes nowhere near.
Trump has said “tariff” is his favorite word and views them as revenue generators that would help fill government coffers. ( Reuters)
Actually I was expecting this to be an issue regardless of the winner. What I mean by that is that the present Biden administration has been fiscally loose. In addition to that Kamala Harris was going to be pressed by Trump to spend more. So whilst there is probably an add on from The Donald winning it is as much a nuance as a driving force. The political class these days usually sings along with Shirley Bassey whatever its hue.
Energy Policy
This is economic terms may well end up being the biggest change of all over the Presidential term.
Trump has vowed to increase U.S. production of fossil fuels by easing the permitting process for drilling on federal land and would encourage new natural gas pipelines. He has said he would reauthorize oil drilling in the Arctic National Wildlife Refuge in Alaska. ( Reuters)
The prospect of cheaper energy costs especially relative to Europe and the UK which are pursuing high cost and unreliable renewables may well give the US an economic advantage.
He has argued that the U.S. needs to be able to boost energy production to be competitive in developing artificial intelligence systems, which consume large amounts of power. ( Reuters)
Bitcoin
This is a fascinating one.
BREAKING: #Bitcoin officially hits $75,000 for the first time in history. Bitcoin now has a market cap of $1.45 trillion, up over 70% year-to-date. Historic night for crypto markets. ( The Kobeissi Letter)
The Donald has given more than a few pro Bitcoin hints.
- Donald Trump branded himself as the pro-crypto candidate for president on the campaign trail.
- The former president promised to launch a strategic national crypto stockpile if elected to a second term. ( CNBC)
Comment
I thought I would end with something that is potentially rather contrary. Let me start with something that is awfully familiar from the first Trump term.
Trump also has said that as president he would pressure the Federal Reserve to lower interest rates – but would stop short of demanding it. ( Reuters)
I do not expect that to matter much for tomorrow’s decision because as I pointed out on Monday I am expecting a 0.25% reduction in interest-rates anyway. But looking further ahead there is a potential clash because Bitcoin support moves us away from the idea of a central bank digital coin or CBDC. As I seem them as a vehicle for more negative interest-rates ( of the order of -3% via papers from the IMF and ECB ) I welcome that.
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