More certainty for markets of a Trump victory now might mean more uncertainty later if he sweeps November’s elections.
Just as we saw after Joe Biden’s laughably poor performance in the first presidential debate a few weeks ago, two of three key elements of the so-called Trump trade – bitcoin up, the US dollar up and bond yields higher – performed as expected in the hours following the assassination attempt on the former US leader.David Rowe, while the US dollar edged higher. The theory here is that the dollar will strengthen if loose fiscal policy under a Trump administration keeps bond yields elevated.
But while the odds of Trump returning to the White House have improved, it remains to be seen whether the shocking outbreak of political violence will spook some investors, and send them running for traditional safe havens such as gold, Swiss francs and US Treasuries. As Vantage Point’s Nick Ferres says, political uncertainty around the US election is now lower than it was – Trump, who is generally seen as more pro-market than Biden, is now almost certain to win in November, and will probably win easily.
In a market where equity risk premium remains non-existent, and implied volatility is extremely low, Ferres says investors remain all-in on the idea that disinflation will resume and interest rates will come down – and they are vulnerable if this doesn’t play out.
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