Markets Hold Breath Ahead of Trump’s Presidency
As the world waits with bated breath for Donald Trump’s second presidency, investors are bracing themselves for a flurry of policy announcements that could shake up the global economy. With Trump set to take the oath of office, markets are cautiously optimistic, with stocks edging higher and the dollar drifting lower.
A New Era of American Strength
Trump has promised a “brand new day of American strength” and is expected to issue a slew of executive orders right away. His unpredictability was on full display last week, when he launched a digital token that soared above $70 before sliding to around $50. This move has left traders uneasy, wondering what other surprises he may have in store.
Global Markets React
Monday is a U.S. holiday, so the first responses to Trump’s inauguration will be felt in foreign exchange and Asian trade on Tuesday. U.S. equity futures are a fraction weaker, while the dollar has eased slightly. European and FTSE futures are broadly flat, but Japan’s Nikkei has risen 1.2%.
Investors Take a Cautious Approach
According to Nick Ferres, CIO at Vantage Point Asset Management, “a lot is in the price” and investors are taking a cautious approach. With the dollar up more than 8% on the euro since September, some analysts believe a more gradual start to U.S. tariff hikes may draw out some sellers.
Trade Tensions Simmer
Trump’s threatened tariffs on global imports, including 10% on Chinese goods and 25% on Canadian and Mexican products, have sent shockwaves through the markets. The Canadian dollar has touched a five-year low, while the Mexican peso has hit a 2-1/2 year low.
China in Focus
China is in the spotlight as the target of the harshest potential trade levies. Investors are watching closely as Trump and Chinese President Xi Jinping begin trade negotiations. Hong Kong’s Hang Seng has risen 2.4%, and China’s yuan has rallied.
Yuan’s Fate Tied to Trade Policy
The yuan is seen likely to slowly adjust to any shifts in trade policy, and has touched a two-week high. According to Ken Peng, head of Asia investment strategy at Citi Wealth, the relationship between Trump and Xi Jinping has become a leading indicator of policies.
Commodities in Flux
Gold has hovered at $2,706 an ounce, while Brent crude futures have dipped on expectations Trump may ease curbs on Russia’s energy sector. The Australian dollar, sensitive to trade flows and China’s economy, has scraped off five-year lows and may test resistance if Trump’s policy changes fall short of market expectations.
Japan’s Rate Hike Looms
Japan’s yen has rallied last week on hints of a rate cut, with rates markets pricing in an 80% chance of a 25 basis point rate hike on Friday. As the world waits for Trump’s next move, markets are holding their breath, bracing for a potentially tumultuous ride ahead.
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