Financial markets responded decisively to Donald Trump’s comfortable victory in the US presidential election, with swift movements across asset classes signalling investors’ expectations of significant policy shifts ahead.
The immediate market reaction saw US equities climbing to record highs, with both the Dow Jones Industrial Average and S&P 500 reaching unprecedented levels in early Wednesday trading. The US dollar strengthened markedly, particularly against the euro, as traders priced in a prolonged period of elevated interest rates.
Trump’s economic agenda, centred on substantial tax cuts and aggressive trade tariffs, is poised to reshape the American economic landscape. His proposed 60% levy on Chinese imports and 10% tariff on goods from other nations have raised concerns about global trade disruption, with export-dependent economies like Germany particularly vulnerable.
The National Institute of Economic and Social Research projects the US economy could contract by up to 4% under Trump’s tariff regime, depending on implementation scope and retaliatory measures from trading partners. The combination of tax reductions and import tariffs is expected to create inflationary pressures while expanding the already substantial budget deficit, currently tracking at 7% of GDP.
Bond markets reflected these concerns, with yields on US government debt rising as investors factored in higher inflation expectations and increased government borrowing. The Federal Reserve’s anticipated rate-cutting cycle may face delays, with markets still expecting a 0.25 percentage point reduction this Thursday but showing less certainty about subsequent moves.
Lindsay James, investment strategist at Quilter Investors, notes that despite Trump’s rhetoric about reducing state intervention, public spending is likely to remain elevated while taxes stay low. These policies could create persistent inflationary pressures, potentially forcing the Federal Reserve to maintain higher interest rates for an extended period.
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