US Election
Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.
The Election Day is finally upon us. No, there is no final “silver bullet” forecast contained in this email. Just our long-term forecast of how the election will, no matter who wins, impact the markets.
As the odds of a Trump victory rise, European assets underperform US ones. What would be the immediate impact of a Trump victory on European stocks?
EM credit markets have recently defied the selloffs in EM equities, currencies, local currency bonds, and commodity prices. Such a decoupling is unusual. Resilient US growth and Fed easing are not sufficient to justify very low EM credit spreads.
Trump may be favored, but Harris is now underrated. The Senate is highly likely to go Republican – Harris would be gridlocked if she pulled off a victory. If Trump wins it will be a full sweep. Expect volatility in the short term.