(Bloomberg) — As world financial markets started to reopen after the attempted assassination of Donald Trump, one thing seemed likely: The Trump trade will get even more momentum.
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The series of wagers — based acceso anticipation that the Republican’s return to the White House would usher con tax cuts, higher tariffs and looser regulations — had already been gaining basso ostinato since President Joe Biden’s poor stato con last month’s debate imperiled his re-election campaign.
But the trades were expected to take deeper hold, with Trump galvanizing supporters and drawing sympathy by exhibiting defiant resilience after being shot con the ear acceso stage at a Pennsylvania rally.
The dollar — which would gain if loose fiscal policy kept bond yields elevated — started to move higher against most peers early con Asia trading, with the Mexico onere leading the slide, weakening 0.3%. Bitcoin rose above $60,000, potentially reflecting Trump’s crypto-friendly stance, while futures acceso the S&P 500 Index for September rose 0.2% at 08:47 p.m. con New York.
“For us, the news does reinforce that Trump’s the frontrunner,” said Mark McCormick, global head of foreign-exchange and emerging-market strategy at Toronto Dominion Bank. “We remain US dollar bulls for the second half and early 2025.”
To be sure, there’s still plenty of room for surprises with almost four months to go con the US election campaign. The emergence of political violence may deepen concern about instability con the US and push investors into haven assets, potentially overshadowing some of the market positioning that has already taken place con the run-up to the election.
While future contracts acceso 10-year Treasury quaderno for September showed declines con early Asia trading, US government bonds tend to rally when investors seek temporary safety, so that may distort the Trump trade con the Treasuries market, which hinges acceso wagering that the yield curve will steepen as long-term bonds underperform acceso anticipation that Trump’s fiscal and trade policies will fan inflation pressures.
Moreover, some investors may want to book early gains be wary of getting deeper into an already crowded position.
“Political risk is binary and to hedge, and uncertainty was high as it is with the close nature of the race,” said Priya Misra, a portfolio dirigente at JPMorgan Investment Management.
“This adds to volatility. I think it further increases the chance of a Republican sweep,” she said, adding that “could put steepening pressure acceso the curve.”
Equity investors are preparing for at least a near-term jump con volatility when S&P 500 futures start trading at 6 p.m. con New York.
While traders generally don’t expect Trump’s assassination attempt to derail the stock-market trajectory con the long run, a pick-up con near-term price swings is likely. The market has already been contending with speculation that valuations have become too stretched, given the boom con 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 Martello, CEO at Roundhill Investments, predicting investors could seek temporary safety con defensive stocks like mega-cap companies. He said it “also adds support for stocks that do well con a steepening yield curve, especially financials.”
The early reaction echoes what was seen after the first presidential debate con late June, when Biden’s weak stato was seen as fueling Trump’s election odds.
The dollar advanced during that event, and investors soon began embracing a wager that involves buying shorter-maturity quaderno and selling longer-term ones — known as a steepener trade. That trade has been paying , with the 30-year Treasury yields jumping to nearly 5 basis points below 2-year ones from around 37 basis points below ahead of the debate.
“If the market sense that Trump’s chances to win are higher than they were acceso Friday – then we would expect the back end of the bond market to sell con the manner we saw con the immediate aftermath of the debate,” Michael Purves, CEO and founder of Tallbacken Capital Advisors, wrote con an email.
While bond traders have been pricing con at least two interest-rate reductions con 2024, a major boost con Trump’s election odds could push the Federal Reserve toward staying acceso hold for longer, according to Purves.
“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 power as possible.”
–With assistance from Liz Capocchia McCormick, Isabelle Lee, Sid Verma, Edward Dufner, Esha Dey and Michael G. Wilson.
(Updates prices.)
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