The dollar and US equities are early winners of the US election. The inflationary trade sent the dollar to its highest level since July, and US treasury yields soared.
S&P 500 futures were nearly 2% higher on hopes of tax cuts.
The difficult thing for markets to contend with is US yields rising alongside equities. Higher yields are not usually conducive to higher equity prices, so one will likely fall back in line before long.
The Federal Reserve’s interest rate decision later today will shed more light on where interest rates will go in the near term, although today’s election result could make any prepared predictions redundant. The dot-plot chart is likely to shift after Trump’s victory.
“Investors are bracing for tariffs and a clamp down on immigration, policies considered to be inflationary which are likely to mean interest rates may be more elevated in the years to come,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Trump’s more renegade approach to trade is likely to push the US further away from global institutions and the rules-based order built up over many decades.”
Gold has been a popular ‘Trump trade’, yet the precious metals complex was down slightly as Trump took to the stage to claim victory, the stronger dollar weighing on prices.
The stronger dollar could have wide-reaching implications; some emerging markets may suffer as a result, but there will be many benefactors, not least FTSE 100 overseas earners.
The FTSE 100 was higher, helped by dollar earners and companies with exposure to the US. Barclays, with extensive operations in the US, shares soared 4%. Many of the precious miners were weaker in early trade in London.
Tesla shares were well bid in the US premarket as investors cheered the benefits of Trump’s tariffs on the EV maker.
One of the biggest losers from today’s developments are Chinese stocks. The Hang Sang was deeply in the red, with a fresh trade war potentially on the horizon.