Global Markets Shift as Investors Bet on Potential Trump Return

Global markets ramp up the 'Trump trade' after rally attack

(Bloomberg) -- As world financial markets reopened after the attempted assassination of Donald Trump, one thing was clear: The Trump trade is gaining momentum. The series of wagers -- based on anticipation that the Republican's return to the White House would usher in tax cuts, higher tariffs and looser regulations -- had already been gaining ground since U.S. President Joe Biden's poor performance in last month's debate imperiled his re-election campaign. But the trades took deeper hold, with Trump galvanizing supporters and drawing sympathy by exhibiting defiant resilience after being shot in the ear on stage at a Pennsylvania rally. Treasuries fell as trading kicked off on Monday, with long-dated bonds leading losses on bets Trump's fiscal and trade policies will spur growth. The yield on 30-year bonds rose to 4.44 per cent, surpassing two-year equivalents for the first time since January, steepening the curve. The dollar edged higher against most peers, with the Mexican peso falling more than one per cent. Bitcoin jumped the most in almost two months while futures on the S&P 500 Index for September climbed 0.4 per cent. "You are seeing the favorite trade of a Trump presidency which is a curve steepener," said Fredrik Repton, senior portfolio manager for global fixed income and currencies at Neuberger Berman. "It looks like we will see more term premium in the markets going forward." To be sure, there's still plenty of room for surprises with almost four months to go in the U.S. election campaign. The emergence of political violence may deepen concern about instability in the U.S. and push investors into haven assets, potentially overshadowing some of the market positioning that has already taken place in the run-up to the election. Moreover, some investors may want to book early gains or be wary of getting deeper into an already crowded position. "Political risk is binary and hard to hedge, and uncertainty was high as it is with the close nature of the race," said Priya Misra, a portfolio manager at JPMorgan Investment Management. "This adds to volatility. I think it further increases the chance of a Republican sweep." While traders generally don't expect Trump's assassination attempt to derail the stock-market trajectory in the long run, a pick-up in near-term price swings is likely. The market has already been contending with speculation that valuations have become too stretched, given the boom in artificial-intelligence stocks and the risks posed by elevated interest rates and political uncertainty. But investors have also been anticipating that bank, health-care and oil-industry stocks would benefit from a Trump victory. "The attack will boost volatility," said David Mazza, CEO at Roundhill Investments, predicting investors could seek temporary safety in defensive stocks like mega-cap companies. He said it "also adds support for stocks that do well in a steepening yield curve, especially financials." The reaction echoes what was seen after the first presidential debate in late June, when Biden's weak performance was seen as fueling Trump's election odds. While bond traders have been pricing in at least two interest-rate reductions in 2024, a major boost in Trump's election odds could push the U.S. Federal Reserve toward staying on hold for longer, according to Michael Purves, CEO and founder of Tallbacken Capital Advisors. "Trump's stated policies are -- at least now -- more inflationary than Biden's," he wrote, "and we think the Fed will want to accumulate as much dry powder as possible."

Markets today: U.S. curve steepens as traders bet on Trump return

(Bloomberg) -- U.S. stock futures rose and longer-maturity bonds retreated as investors ratcheted up wagers that Donald Trump would win the presidential election after an assassination attempt. The U.S. 30-year yield rose above the two-year for the first time since January on bets that Trump would pursue a more expansive fiscal policy if he returns to the White House. The U.S. dollar rallied against most of its G-10 peers and U.S. stock futures climbed. "The shooting has seen the market positively re-appraise Trump's chances of winning -- this is why we are seeing the yield curve steepen more in the medium term," said Stuart Cole, head macro economist at Equiti Capital U.K. Markets are positioning for a Trump return to the presidency that brings more tariffs and increased spending, moves that could spur inflation. According to Cole, that could make the job of the U.S. Federal Reserve "a little more difficult," even as signs mount that the pace of price growth is coming under control. Traders will get a chance to gauge the appetite for interest-rate cuts later Monday with both Fed Chair Jerome Powell and San Francisco Fed President Mary Daly due to speak. Last week, economic reports bolstered bets for two rate cuts in 2024. "The inflation and the Fed rate cut story right now are front and center," said Kenneth Broux, strategist at Societe Generale. S&P 500 contracts climbed 0.5 per cent, with Apple Inc. rising in premarket trading after Morgan Stanley said the company's artificial intelligence platform makes it a top pick. Analyst Erik Woodring boosted his price target on the tech giant's shares to US$273, the third-highest among analysts tracked by Bloomberg, saying Apple Intelligence has potential to drive a record number of device upgrades. Trump's media firm, Trump Media & Technology Group Corp., soared 67 per cent. The shares of private prison operators and firearm-related companies were also among stocks rallying before the session-proper starts. The tone was weaker for equities in Europe, where the Stoxx 600 index edged lower. Burberry Group Plc tumbled nearly 17 per cent after replacing its chief executive officer and issuing a profit warning. In currencies, the Mexican peso fell more than one per cent against the dollar, leading losses among emerging-market peers. Bitcoin, meanwhile, jumped the most in almost two months, on speculation the pro-crypto former president's chances of winning reelection have improved. New York state factory activity contracted for an eighth straight month in July while a measure of prices received by producers declined to a one-year low.