Markets react to Trump win: US futures, dollar surge, commodities drop

So, it has just been confirmed that Donald Trump has won majority of the votes to become the next President of the USA and the Republicans have also won the senate.

The big win has given “an unprecedented and powerful mandate” declared Trump, as his party won swing states of North Carolina, Wisconsin, Pennsylvania and Georgia. The Republicans could also win the house, but this is not confirmed yet. With 5 results to go, Trump has already won 51% of the vote with Harris only securing around 47.4% - a massive victory for Trump and a massive response from the markets!

Source: TradingView.com

US futures point to a new record on S&P 500

US index futures have rallied strongly with the S&P futures showing a 2.3% gain. The rationale behind the US stock market rally is that Trump is seen as business-friendly and will be able to pass on his tax cuts through easily without much resistance from the democrats who have lost control of the senate. The key risk now is if the weakness in commodities and foreign markets could derail the rally in the short-term. It is also worth keeping an eye on rising bond yields, which could negatively impact sentiment, especially in growth stocks.

Could European indices come under pressure?

European stocks are higher too even though Trump’s tariffs could negatively impact European exports to the US. The threat of tariffs, the potential for a relatively tighter US monetary policy, as well as slumping commodities, are factors that might come back to hurt the European indices, once the dust settles.

Dollar surges on inflation concerns

The dollar is higher across the board while commodities have taken a hit amid the dollar strength and threats of tariffs hitting demand. With the Republicans having also taken a majority in the Senate, Trump has been given a powerful mandate and platform to implement his policies, including tax cuts. This could boost inflationary pressures and result in a slower pace of rate cuts from the Fed relative to other central banks. It could even prevent the Fed from cutting rates significantly in 2025 should the disinflation process stops and reverses. This is why the US dollar has rallied as we had expected.

Commodities drop

Crude oil is coming under pressure because of potential for increased drilling activity could lead to more US oil production. The downside has been limited so far because of the risk rally. But oil is more likely to test recent lows I would say, and the trigger would be if WTI breaks Monday’s low. As well as increased drilling in the U.S., and a stronger U.S. dollar, tariffs could hurt demand in key markets such as China.

Commodities could remain under pressure given Trump’s promise of tariffs on imported goods, especially from China. Industrial metals could be a particular weak spot and we have seen copper and iron ore being hurt overnight. The stronger USD and yields are also hurting gold as the opportunity cost of holding the non-interest-bearing asset climb.

There is now the risk that the FOMC may slow its rate-cutting pace. This is because inflation may re-ignite with Trump’s policies.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R