How the Trump victory will affect the global markets
By Team Exness
06 November 2024
The numbers are in, and this January, Donald J. Trump will be sworn in as the 47th President of the United States. Given that Trump’s policies are radically different from Bidenomics, it’s logical to assume a financial shakeup, but what does that mean for traders?
There are three assets that most experienced traders will be monitoring. Eyes are already on gold, and thanks to a recent 20% spread reduction, there’s never been a better time to trade XAUUSD with Exness. It would be wise to also consider adding indices such as S&P500 and crude oil to your watchlist. Here’s why:
Three assets to watch
Donald Trump’s economic agenda for his second term is characterized by aggressive tax cuts, deregulation, and a strong emphasis on energy independence.
As we assess the potential economic impact of Donald Trump’s administration, particularly on USOIL, SPX, and XAUUSD, it’s essential to understand his proposed economic policies and their implications.
1. USOIL (Crude Oil Prices)
Trump’s promise of increased oil extraction, encapsulated in his ‘drill, baby, drill’ slogan, could exert pressure on oil prices.
Policies: The Trump administration would likely prioritize boosting domestic oil production through deregulation, opening federal lands for drilling, and providing tax incentives for energy companies. Rollback of environmental regulations would likely reduce oil companies' operational costs and encourage more exploration and production activities. This approach aligns with his “America First” energy policy, aimed at reducing dependence on foreign oil and driving down oil prices.
Implications: Trump’s focus on energy independence and deregulation could lead to a significant increase in domestic oil production. Opening up federal lands and expediting drilling permits would likely enhance supply, exerting downward pressure on oil prices.
Additionally, Trump’s trade policies and proposed tariffs on China could heighten geopolitical tensions, historically contributing to oil market volatility. Since U.S. crude oil exports to China account for over 10% of total exports, retaliatory tariffs could adversely impact these exports as Chinese importers seek alternative sources.
2. SPX (S&P 500)
Trump’s proposed tax cuts could boost consumer spending and corporate profits; however, inflation and growth risks might temper the SPX's upward momentum.
Policies: Beyond extending current tax cuts, Trump has proposed additional tax breaks for small businesses and reversing the $10,000 cap on state and local tax deductions.
Other initiatives include lowering the corporate tax rate from 21% to 15% and eliminating taxes on certain capital gains and small business income, all aimed at spurring investment and driving economic growth.
Implications: Lower corporate taxes and deregulation could lead to increased earnings growth, driving stock prices higher. Trump’s tax cuts plans could result in a GDP growth uptick of 0.3% relative to the pre-election baseline by 2028 (Figure 1). Sectors like financials, energy, and manufacturing might outperform due to favorable tax policies and reduced regulatory burdens.
However, a key risk to this view is that Trump’s plan includes aggressive tariffs of up to 60% on imports from China, aimed at protecting American jobs. The potential for higher tariffs could create market uncertainties and drive inflation as imported goods become more expensive. Bloomberg Economics projects a 0.4% increase in inflation relative to the pre-election baseline by 2028 (Figure 1). A resurgence in inflation could prompt the Fed to pause its easing cycle and temper the upward momentum in the SPX.
How Trump, Harris tax plan would affect growth prices
Estimated impact by 2028 (relative to baseline)
Left: GPD - Right: Inflation
Source: Bloomberg Economics
Figure 1: https://www.bloomberg.com/features/2024-trump-harris-economics-plan-models/
Moreover, a World Trade Organization model suggests that if Trump’s full tariff plan were implemented, it could reduce GDP by 0.8% and raise prices by 4.3% by 2028, assuming only China retaliates.
If other countries also impose retaliatory measures, the impact would be more severe, with GDP shrinking by 1.3% and prices rising by only 0.5%, as reduced exports would slow both economic growth and inflation (Figure 2).
Trade war escalation would cut US growth, raise prices.
Estimated 2028 impact of Trump’s tariff plans (relative to baseline)
Left: If China and the rest of the world retaliate
Right: If China alone retaliates
Source: Bloomberg Economics
Figure 2: https://www.bloomberg.com/features/2024-trump-harris-economics-plan-models/
3. XAUUSD (Gold)
Gold could benefit from heightened trade tensions and Trump’s reflationary policies.
Policies: Trump plans to implement tariffs of 20% on all imports and 60% on Chinese goods, effectively raising costs for consumers while protecting domestic industries. This strategy is rooted in the "America First" approach and could escalate geopolitical tensions, creating economic uncertainty.
Additionally, Trump proposes extending the Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35% to 21%, with plans to lower it further to 15% and cut personal income tax rates.
Implications: The combination of tax cuts and increased spending could lead to higher disposable income and consumption, potentially causing a resurgence in inflation, which would make gold an attractive hedge.
Furthermore, Trump's aggressive stance on tariffs and trade could heighten geopolitical tensions, potentially driving investors toward safe-haven assets like gold and keeping gold prices elevated. During his presidency from 2017 to 2021, gold surged by more than 70%, fueled by the US-China trade war and the pandemic. While history may not repeat itself, it often rhymes.
Conclusion
With Trump set to return as the 47th president, the markets are gearing up for a rollercoaster ride. Oil, gold, and the S&P 500 are all primed for major swings, and the opportunities for traders are immense. But only those ready to act fast will reap the rewards.
At Exness, you’ll get unbeatable spreads, even during Trump-fueled volatility. Whether you’re trading gold, oil, or US-related assets, our platform gives you unmatched conditions to trade with confidence. No commissions, fast execution, and around-the-clock support—everything you need to stay ahead in this rapidly changing market under Trump.
The question isn’t if Trump will move the markets, it’s how big the moves will be. Don’t wait until it’s too late. Trade the Trump effect with Exness—join 800k+ traders and make the most of this historic time.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Author:
