Dollar, yields and stocks soar; global markets see mixed impact
Trade boosts U.S. dollar, Treasury yields, stocks, Bitcoin, and banks after Trump’s election; drops gold, oil, and Asian markets on tariff fears.
United States’s Market Reaction and Trade Shifts
Donald Trump’s election victory has triggered significant movement in U.S. financial markets. The U.S. dollar surged, achieving its largest one-day gain in two years, with the dollar index (.DXY) rising by 1.5%, reaching multi-month highs against major currencies, including the yen and euro. Treasury yields also spiked on inflation expectations, with the benchmark 10-year yield jumping 17 basis points to 4.44%, its highest since July, and 30-year yields climbing 20 basis points to 4.65%.
Stock futures responded favorably: the S&P 500 and Dow Jones futures climbed by 2.2% and 3.1%, respectively, while Nasdaq futures rose 1.6%. Small-cap stocks, tracked by the Russell 2000 Index, surged over 6% as domestic firms are poised to benefit from protectionist policies and potential tax cuts. Volatility dropped, with the VIX falling below historical averages.
Banking stocks, including JPMorgan and Capital One, gained almost 7% and 11.3%, respectively, on expectations of looser regulations. The digital currency trade also rallied, with Bitcoin soaring nearly 8% to a record $74,186, while shares in Trump Media & Technology Group spiked 36%. Tesla stock rose 15%, benefiting from Elon Musk’s close ties to the administration and expectations for favorable EV policies.
Investor attention also turned to U.S. corporate earnings, with major companies like Qualcomm, CVS, and Gilead releasing quarterly results this week.
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Oil, Energy, and Commodities
Oil prices dipped amid expectations for expanded U.S. drilling under Trump’s energy-friendly stance, pushing West Texas Intermediate crude down by 2.5% to $70.22 per barrel. Gold, typically a safe-haven asset, saw a 2.3% decline, falling to $2,681 per ounce, as the dollar’s strength weighed on commodity prices. Renewable energy stocks faced losses due to concerns about policy rollbacks, with companies like First Solar and Enphase dropping by double digits.
Asia’s Varied Responses and Concerns Over Trade Policy
Asian markets saw mixed reactions to Trump’s election win, largely due to concerns over potential tariff increases. In Japan, the Nikkei 225 surged by 2.6%, aided by a weakened yen, while South Korea’s Kospi fell 0.9%. Chinese markets, anticipating restrictive U.S. trade measures, underperformed; the CSI300 dropped 0.5%, and the Hang Seng Index in Hong Kong declined by 2.6%. However, Beijing’s policy meeting aimed at addressing local debt issues and fiscal stimulus added some resilience, with Premier Li Qiang’s optimistic comments on China’s growth target of 5% providing brief support to domestic trade.
European Bond and Stock Results Diverge
In Europe, markets generally moved upward but bond yields diverged from U.S. trends. The Stoxx Europe 600 gained 0.7%, with Germany’s DAX up 0.4% and the FTSE 100 advancing 1%. Despite equity gains, eurozone government bond yields fell, contrasting sharply with the spike in U.S. Treasury yields. Germany’s 10-year yield declined by 2 basis points to 2.4%, reflecting investor concerns over Europe’s economic resilience amid trade uncertainty and the rising possibility of a snap election in Germany. The euro fell 2% to $1.0707, while the pound declined by 1.4% to $1.2863, pressured by the strengthening dollar and unease over potential trade implications.
Cryptocurrency Surge
Cryptocurrency markets experienced a strong rally, with Bitcoin gaining 7.3% to $74,186 and Ethereum rising 9% to $2,631. The market viewed Trump’s administration as likely to adopt a lenient approach toward digital assets, spurring optimism. Shares of crypto-related companies like Coinbase increased by 13%, and Dogecoin saw an 18% jump.
Global Trade and Currency Shifts
Trump’s victory stoked expectations of heightened trade tensions, especially with China. The dollar’s strength impacted emerging market currencies, notably the Mexican peso, which experienced its largest decline in three months. The yen also fell, reaching 154.20 per dollar, down 1.7%. Matthew Ryan of Ebury remarked on investor sentiment that Trump’s policies could lead to a “higher Federal Reserve rate and weaker global growth,” further boosting the dollar.
U.S. Economic Indicators and Federal Reserve Expectations
With a robust pre-election economy, recent data showed the U.S. trade deficit widened by 19% to $84.4 billion in September, as imports hit a record $352.3 billion. Investors remain focused on potential Federal Reserve actions, with the trade pricing in a 90-basis-point rate cut over the coming year and a terminal rate near 3.75%. Key upcoming events include the Fed’s rate decision, where another quarter-point cut is widely expected.
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