On the brink of Trump Trade? Markets brace for US election shockwave

Trump Trade:  Ahead of the US presidential elections, markets are bracing for a potential ‘Red Sweep’ with polling trends suggesting former President Donald Trump’s takeover of the White House. Betting markets and state polls have already indicated a significant boost for Trump’s odds – this has left the global markets in a state of acute and intense volatility.
The potential impact of Trump's victory on American economic policy has led to what is being termed as ‘Trump Trade’ activity. Markets are quickly adjusting expectations of increased fiscal stimulus through tax cuts which the Republican agenda could prioritise.

So what are the key economic changes that are likely? First, it could extend the 2017 tax cuts, alongside a focus on defense, technology, and infrastructure spending. The fiscal expansion could add an estimated $7.5 trillion to the deficit over a decade, fuelling bond yield rise and a stronger US dollar . The bond yield and currency markets are reflecting volatility in the short term. Investors are betting on the rising US Treasury yields with increased demand for the US debt due to anticipated fiscal stimulus. A strong Dollar is also seen as an offset to the Trump administration’s proposed tariffs –Particularly those aimed at China where plans include a universal 10 percent import tariff and a 60 percent tariff on Chinese imports.

And what if Kamala Harris comes to power? Well, Harris is expected to bring some continuity from the Biden regime with increased spending, but higher taxes on corporations and wealthy individuals. The Harris platform leans towards income redistribution policies, higher corporate taxes, and a focus on green energy. But according to experts, the Harris-led Congress can result in policy gridlock and could subdue the market.

Emkay's analysis of the US polls on India says the effect on India could be mixed. A Republican win would lead to a temporary rally in Indian equities doe to a US-led market surge. Additionally, a strong Dollar and a higher US yield could weigh on the Indian Rupee which is currently under pressure from the Chinese Yuan depreciation. FX volatility could also disrupt the Reserve Bank of India’s monetary plans, potentially delaying rate cuts.

Investors are on a cautious watch for the outcome of the US elections. Be it the Republican sweep or a divided Congress, there’s likely to be far-reaching consequences. Investors are cautious that Trump’s policies could also disrupt the global supply chain and intensify US-China trade tensions. The market is on the edge and the result of this election is likely to shift the financial world by impacting global markets, like never before.