Former U.S. President Donald Trump arrives during the “Get Out the Vote” rally in Greensboro, North Carolina, U.S., Saturday, March 2, 2024.
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Donald Trump’s US election victory has fueled concerns about higher inflation, prompting strategists to revise their outlook for global bond yields and currencies.
It is widely believed that the president-elect’s promise to introduce tax cuts and higher tariffs could boost economic growth – but could widen the fiscal deficit and fuel inflation.
Trump’s return to the White House is seen as likely to throw a wrench into the Federal Reserve’s rate-cutting cycle, possibly maintaining an upward bias on Treasury yields. Bond yields rise when market participants anticipate higher prices or rising budget deficits.
Aleem Ramtola, chief foreign exchange strategist at EFG International, said it would be “unfeasible” for the Fed to continue its easing plans while yields rise.
“Ultimately, either the Fed will have to hold off on rate cuts because the economy is no longer at risk of a recession or the economy reverses with a recession and output explodes,” Ramtola told CNBC via email. told
“The election of Trump raises both the possibility of a trade war and increased fiscal spending at cross-purposes,” he added.
The benchmark US 10-year Treasury yield has risen sharply since Trump’s election victory over Democratic nominee Kamala Harris in early November, before paring gains in recent days.
The 10-year Treasury yield traded up 3 basis points on Wednesday morning at 4.4158%. Output and prices move in opposite directions. One basis point is equal to 0.01%.
European bond market offers ‘more compelling value’
“In Europe, there’s been a slight recovery on data not as bad as expected but also on the feeling that it will take a quarter or two for Trump’s policies to take effect,” EFG International’s Ramtola said.
“There is also the possibility that Trump’s campaign rhetoric was for electoral purposes and that he will govern near the status quo. This would also help the Eurozone to avoid recession and lift it.” [the euro]” he added.
Germany’s 10-year bond yield, the benchmark for the euro zone, was at 2.337 percent on Wednesday, marginally lower for the session. The yield on 2-year bunds, meanwhile, rose nearly 1 basis point to 2.151 percent.
Pedestrians walk past the New York Stock Exchange (NYSE) decorated with a giant US national flag on November 6, 2024 in New York City.
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Shannon Crone, associate director of fixed income ratings at Morningstar, said a large proportion of investors expect European bonds to do “significantly better” in the coming years, while the euro is expected to weaken.
“Even before the U.S. election, the consensus among bond fund managers I spoke with was that the European bond market offered more compelling value than the U.S. market,” Krohn told CNBC via email. “
“As a result, many managers had already positioned their portfolios to move towards European credit and away from US corporate bonds.”
In an effort to raise U.S. tariffs, Trump has suggested he could impose a 20 percent tariff on all goods imported into the country, with tariffs of up to 60 percent on Chinese products. Up to 2,000% On vehicles made in Mexico.
As for the European Union, meanwhile, Trump has said the 27-nation bloc is a “Great price“For not buying enough American exports.
“We’re hearing managers in both markets say they prefer to keep the powder dry a little – for example by increasing quality or choosing to hold a little more cash than usual – to avoid potential volatility. can take advantage of the uphill road,” Crone added.
What about Asia?
Sameer Goyal, global head of emerging markets research at Deutsche Bank, told CNBC that “Street Signs Asia” said on Tuesday that the risk of rising US inflation in a second Trump presidency has yet to be priced in.
Asked how Trump 2.0 could affect Asian economies and regional currencies, Goyal said it is likely to widen the inflation gap between the US and Asia, further weakening the currency. is
“I guess, as always, there are different strokes as far as individual central banks and countries are concerned, but I think there are more than offset cross-currents because tariffs are very disruptive and growth-prone,” Goyal said. can harm,” Goyal said.
“On the other hand, depending on where energy prices go or alternative issues like currency weakness, that could be more beneficial for some countries,” he added.
For Asian currencies, MUFG analysts said Investors have yet to fully price the potential scale of U.S. tariffs on China and elsewhere.
A 60% tariff on Chinese products, for example, would require the Chinese yuan to depreciate by 10% to 12% against the U.S. dollar, MUFG analysts said in a research note published on Nov. 7. Making matters worse is the threat of other countries raising tariffs on Chinese products.
MUFG analysts cited the Singapore dollar, Malaysian ringgit and South Korean won as Asian currencies with greater exposure to China that are considered more vulnerable to Trump tariffs.
Currency Outlook
Strategy at the Dutch bank ING said A research note published earlier this month said financial markets have a tendency to “highly second-guess” potential outcomes.
“Our advice is not to overthink it and instead take the firm view that the new administration’s weak fiscal and tough immigration policy plans, when combined with relatively high U.S. rates and protectionism, are all about the dollar. Makes a strong case for Raleigh.” ING said in a note published on November 13.
“Yes, the US economy may be overheated – but 2025 should be the year to deflate any possible dollar bubble,” he added.
Euro Dollar Year to Date.
Meanwhile, European currencies are expected to underperform.
Strategists at ING said they estimate the risk premium to peak at the end of next year, which would mean if the euro can stay above parity with the US dollar before then, “we see 1.05- See all terms of structural change from 1.10 to 1.00-1.05 range next year.
ING said Scandinavian currencies such as Sweden’s krona and Norway’s kroner were likely to be exposed to downside risks, while Britain’s pound sterling and the Swiss franc were set to improve “modestly” against the euro.
