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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.\u00a0<\/p>\n
The series of wagers \u2014 based on anticipation that the Republican\u2019s return to the White House would usher in tax cuts, higher tariffs and looser regulations \u2014 had already been\u00a0gaining ground<\/a> since President Joe Biden\u2019s poor performance in last month\u2019s debate\u00a0imperiled<\/a>\u00a0his re-election campaign.\u00a0<\/p>\n But the trades were expected to take 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.<\/p>\n The dollar \u2014 which would gain if loose fiscal policy kept bond yields elevated \u2014 started to move higher against most peers early in Asia trading, with the Mexico peso leading the slide, weakening 0.3%. Bitcoin rose above $60,000, potentially reflecting Trump\u2019s crypto-friendly stance, while futures on the S&P 500 Index for September rose 0.1% \u00a0at 06:05 p.m. in New York.<\/p>\n \u201cFor us, the news does reinforce that Trump\u2019s the frontrunner,\u201d said Mark McCormick<\/a>, global head of foreign-exchange and emerging-market strategy at Toronto Dominion Bank<\/a>. \u201cWe remain US dollar bulls for the second half and early 2025.\u201d\u00a0<\/p>\n The one caveat to all this is that the emergence of political violence may deepen concern about instability in the US 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.<\/p>\n While future contracts on 10-year Treasury notes for September showed declines in early Asia trading, US government bonds tend to rally when investors seek temporary safety, so that may distort the Trump trade in the Treasuries market, which hinges on wagering that the yield curve will steepen as long-term bonds underperform on anticipation that Trump\u2019s fiscal and trade policies will fan inflation pressures.\u00a0<\/p>\n Moreover, some investors may want to book early gains or be wary of getting deeper into an already crowded position.<\/p>\n \u201cPolitical risk is binary and hard to hedge, and uncertainty was high as it is with the close nature of the race,\u201d said Priya Misra, a portfolio manager at JPMorgan Investment Management.\u00a0<\/p>\n \u201cThis adds to volatility. I think it further increases the chance of a Republican sweep,\u201d she said, adding that \u201ccould put steepening pressure on the curve.\u201d<\/p>\n While traders generally don\u2019t expect Trump\u2019s 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.\u00a0<\/p>\n But investors have also been anticipating that bank, health-care and oil-industry stocks would benefit from a Trump victory.<\/p>\n \u201cThe attack will boost volatility,\u201d said David Mazza, CEO at Roundhill Investments, predicting investors could seek temporary safety in defensive stocks like mega-cap companies. He said it \u201calso adds support for stocks that do well in a steepening yield curve, especially financials.\u201d<\/p>\n The early reaction echoes\u00a0what was seen<\/a>\u00a0after the first presidential debate in late June, when Biden\u2019s weak performance was seen as fueling Trump\u2019s election odds.\u00a0<\/p>\n The dollar\u00a0advanced<\/a>\u00a0during that event, and investors soon began embracing a wager that involves buying shorter-maturity notes and selling longer-term ones \u2014 known as a\u00a0steepener trade<\/a>. That trade has been paying off, 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.<\/p>\n \u201cIf the market sense that Trump\u2019s chances to win are higher than they were on Friday \u2013 then we would expect the back end of the bond market to sell off in the manner we saw in the immediate aftermath of the debate,\u201d Michael Purves, CEO and founder of Tallbacken Capital Advisors, wrote in an email.<\/p>\n While bond traders have been pricing in at least two interest-rate reductions in 2024, a major boost in Trump\u2019s election odds could push the Federal Reserve toward staying on hold for longer, according to Purves.\u00a0<\/p>\n \u201cTrump\u2019s stated policies are (at least now) more inflationary than Biden\u2019s,\u201d he wrote, \u201cand we think the Fed will want to accumulate as much dry power as possible.\u201d<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n