Financial Forecasts November 2024: Trump 2.0

At the end of a campaign unique in American history, marked by unprecedented verbal attacks (insults hurled by one camp, the threat of fascism brandished by the other), a change of candidate halfway through, two assassination attempts, and billionaires wading in, the world's largest economy has made a clear choice. It is Donald Trump who will be sworn in as the 47th President of the United States with almost full powers (Congress, White House and the Supreme Court all aligned) and a clear and popular mandate.To quote Trump’s campaign anthem, namely the YMCA lyrics, “There’s a place you can go” and it will be the United States, with a likely intensification of the trade war. While Trump may not go all out (he has pledged to impose 20% customs tariffs on all imports, 60% in the case of China, 1,000% on Chinese EVs, 100% on countries choosing to de-dollarize, etc.), he will have the backing of Congress and can therefore be expected to do much more than in 2016.While his campaign promises would be inflationary and likely negative for longer-term growth (if tax cuts fail to offset the rise in prices for imported goods and given plans to deport 3% of the economically active population, a source of cheap labour and instrumental in growing consumption). This could mean that the Fed might not cut rates quite as much (terminal rate revised upwards from 3% to 3.65% mid-2025).As regards the markets, the shift post-election confirms that it will be on the upside in the case of rates, the US dollar, bitcoin and equities, but negative for emerging markets (higher customs tariffs, interest rates and US dollar), EUR or Renminbi (a depreciation might be a way to compensate tariffs).The impact on volatility has been negative (owing to a relief that there has been a clear outcome rather than weeks of uncertainty and institutional gridlock), but what awaits down the road is less clear, with a more isolationist US.If the United States is less interventionist, this will play into Vladimir Putin’s hands, while it will be negative for China (60% customs tariffs), for India (branded an “incredible aggressor” by Trump in July), Europe (labelled a “mini China” in October), Taiwan (accused of “stealing U.S. chips industry” in October), Mexico (100% customs tariffs, border wall, tensions over the flow of migrants), Canada and Iran (2m bpd vs. 0.5m bpd with Trump "maximum pressure"), etc.At sector level, Trump’s victory will clearly be more to the benefit of oil and gas (“drill, baby drill” and an objective of increasing LNG exports) even if nothing has been done to prevent extraction from reaching record levels. It will be favourable to US banks (deregulation, less non-financial reporting, softer application of Basel requirements, etc.). Less anti-trust actions likely, less push to promote EV adoption (9% of sales now), though Musk will be a very influential advisor (a “rising star” or Czar?) if not an acting shadow Vice-President, with a helping hand no doubt for Tesla and Bitcoin (“We want all the remaining Bitcoin to be MADE IN THE USA!!!”). And then, of course, defence stands to benefit (an isolationist US that stops support for Ukraine and is less preoccupied about Taiwan can but accelerate the World’s rearmament).Trump has promised to Make America Great Again. Besides the fact it already is, the question is whether this will be at the expense of the rest of the world or if his bark will prove worse than his bite.