The attempted assassination set off a thousand waves, and the “Trump deal” is expected to come menacingly

(NEW YORK, 15th) As global financial markets reopen after the attempted assassination of former US President Trump, one thing seems extremely likely. That is, the so-called “Trump deal” will gain more momentum.

A series of bets based on the expectation that the Republican's return to the White House would cut taxes, raise tariffs, and relax regulations have actually been on the rise since President Joe Biden's poor performance in last month's debate put his re-election campaign in jeopardy.

These deals are now expected to be further cultivated in the market, as Trump's perseverance after being shot at a rally in Pennsylvania inspired supporters and won more sympathy.

Trump's bloodstained and stubborn punching image invigorates the Republican Party's basic estimates to boost his election

At the beginning of the Asian trading session, the dollar began to rise against most of its rivals — it would benefit if loose fiscal policies kept bond yields high. Bitcoin surged above $0.06 million, possibly reflecting Trump's crypto-friendly stance.

Mark McCormick, global head of foreign exchange and emerging market strategy at TD Bank of Toronto, said, “For us, this news really reinforces the fact that Trump is the frontrunner, and we are still optimistic about the dollar's performance in the second half of the year and early 2025.”

The specter of US political violence may drive investors to safe-haven assets, thereby dwarfing some of the arrangements surrounding the presidential election over a period of time.

US Treasury bonds tend to rise when investors seek temporary safe havens, which may distort Trump's transactions in the bond market. The latter is based on the fact that Trump's fiscal and trade policies will increase inflationary pressure, leading to poor long-term debt performance and steeper yield curves.

Furthermore, some investors may want to settle down as soon as possible, or be wary of further increasing positions deep into already crowded positions.

Priya Misra, portfolio manager at Morgan Investment Management, said, “Political risk is dualistic, difficult to hedge against, and the uncertainty is very high because the competitors are basically evenly matched.”

“This has increased the volatility. I think this further increases the chances of the Republican Party winning the general election overall.”

A sharp increase in volatility

S&P 500 futures will begin trading at 6 p.m. New York time, and stock market investors are preparing for a sharp increase in volatility at least in the short term.

Although traders generally believe that Trump's dangerous assassination will not disrupt the long-term trajectory of the stock market, short-term price fluctuations are likely to intensify. Given the sharp rise in AI stocks and the risks posed by rising interest rates and political uncertainty, the market is already dealing with speculations that are overvalued.

But investors have also been expecting sectors such as banking, healthcare, and oil to benefit from Trump's victory.

Flocking to defense units

Roundhill Investments CEO David Mazza pointed out that this attack is unprecedented and will increase market volatility, and investors are expected to flock to defensive stocks such as hypercapitalization companies to take refuge.

He pointed out that stocks that have performed well in the steeper yield curve, especially financial stocks, will also receive support.

Tallbacken Capital Advisors CEO and founder Michael Purvis wrote in an email that if the market feels that Trump's chances of winning are higher than last Friday, then it is expected that the back end of the bond market will be sold off, as everyone saw at the end of the debate.

He said that although bond traders have been digesting the expectation that interest rates will be cut at least twice in 2024, a sharp increase in the probability of Trump's election may push the Federal Reserve to stay on hold for a longer period of time.

“The policies promoted by Trump are (at least for now) more inflationary than Biden's. We think the Federal Reserve will want to accumulate as much dry powder as possible.”

Currently, the market's consensus is that Trump is most likely to win the US election and that the Republican Party will control both houses of the Senate and the House of Representatives. Looking back, there are three key points:

1) Determination of presidential and vice presidential candidates: July 15-18 Republican National Convention+August 19-22 Democratic National Convention

2) Second round of candidate debates: September 10

3) Presidential election: November 5.

Trump's victory in 2016 exceeded market expectations and triggered large fluctuations in asset prices. The market bet on the “Trump deal” within 1-2 months after winning the election, and it is expected that transactions will decline or even reverse slightly after digestion.

The essence of the “Trump deal” at the time was a policy of easing fiscal and tight trade. The center of US inflation rose, and expectations of a widening economic gap between the US and Africa rose. As a result, November to December 2016 showed a “Trump deal” with high interest rates on US bonds, strong US dollars, strong US stocks, and the Dow led the rise.

From November to December 2016, the US dollar index, US bond yields, and commodity prices all showed an upward trend. The three major US stock indexes also rose markedly, with transportation, banking and diversified financial sectors leading the way, and major global currencies generally weakened.

Market sentiment cooled down after expectations for the first quarter of 2017 were digested. US stocks declined in March, US bond yields fluctuated at a high level, the US dollar index declined, and commodity prices also fell. In 2017/4-12, along with the promotion of policies, the above asset prices regained their upward trend.

First, continue the “add tariff+reduce income tax” combo punch. In August 2023, Trump said that if he is re-elected as president, he will levy a 10% “universal benchmark tariff” on all goods entering the US market.

Second, the last round was tough on immigration issues, but actual practices fell short of expectations. Combined with the large number of illegal immigrants currently in the US, a stricter anti-immigration policy may be implemented in this round.

Third, education policies are decentralized, and health insurance policies reduce costs and save financial expenses through competition. In terms of education policy, Trump emphasized controlling the “left-leaning” trend of ideas in the field of education, and advocated cutting federal funding for schools or programs that teach “critical racial theory” and “gender ideology,” while further strengthening the crackdown on radical ideas.