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The surging popularity of Kamala Harris in U.S. election polls and soaring odds the Federal Reserve will soon start cutting interest rates is dealing a double-blow to the so-called Trump trades.\u00a0<\/p>\n
In the 11 days since President Joe Biden declared he wouldn\u2019t seek a second term and Democrats united behind the candidacy of Vice President Harris, strategies seen\u00a0benefiting<\/a>\u00a0from a win by Donald Trump have lost steam. The dollar has stagnated, Treasuries have rallied and Bitcoin has slid.\u00a0<\/p>\n Polls now\u00a0suggest<\/a>\u00a0a dead heat between Harris and Trump in swing states, handing markets a harsh reminder on the risk of betting on political events. Just weeks ago, an assassination attempt and doubts over Biden\u2019s age were seen as helping Trump, who is seen embracing looser fiscal policy, higher trade tariffs and softer financial regulation if he returns to the White House.<\/p>\n \u201cWe have seen some Trump trades unwinding,\u201d Neeraj Seth, chief investment officer and head of APAC fundamental fixed income at BlackRock<\/a>, said in a Bloomberg Television on Thursday. \u201cWe\u2019ll go back and forth between now and the fifth of November.\u201d \u00a0<\/p>\n The markets aren\u2019t solely reacting to the electoral outlook. Fed Chair Jerome Powell acknowledged this week the central bank could pare rates in September, also pushing investors to favor Treasuries and doubt the dollar. That signaling is likely to annoy Trump, who recently told Bloomberg Businessweek a rate cut just weeks before the vote is something officials \u201cknow they shouldn\u2019t be doing.\u201d<\/p>\n What Bloomberg\u2019s Strategists Say\u2026<\/strong><\/p>\n \u201cInvestors have received a cautionary lesson in the dangers of underestimating how rapidly political landscapes can shift. The more likely outcome, especially with the Fed putting a rate cut on the table for next meeting, is for trades tied to US politics to go to sleep until September ends.\u201d<\/p>\n \u2014 Garfield Reynolds, MLIV Asia team leader. Click here for more<\/p>\n<\/blockquote>\n Here\u2019s a rundown of how the Trump trades are faring:<\/p>\n Focus in the world\u2019s biggest bond market has recently been more tied to monetary policy then politics. Treasuries rallied to cap a third-straight month of gains in July \u2014 the longest winning streak for US bonds in three years \u2014 after Powell spoke on Wednesday.<\/p>\n That runs counter to one iteration of the Trump trade, which posits the Republican\u2019s return to the White House would likely lead to tax cuts and add to the national debt, casting a shadow over longer-dated Treasuries.<\/p>\n However, a favorite way to express that concern, via bets on a steeper yield curve, remains a good play for traders thanks to the Fed\u2019s shift toward cuts. An easing Fed is likely to support a so-called bull steepener, where short-dated Treasuries rally more than bonds with further-out maturities.<\/p>\n BlackRock\u2019s Seth sees the Fed policy path as \u201cmore important\u201d from a 12-to-18 month time horizon, rather than trying to speculate on where the elections are going.<\/p>\n \u201cWe are moving toward the easing cycle, that\u2019s unambiguous,\u201d he said.<\/p>\n A gauge of the US dollar has stalled since Biden pulled out of the race.\u00a0<\/p>\n Some traders had been wagering that the dollar would rally into a Trump victory on the premise that it would benefit from a haven bid before the election and then from trade tariffs thereafter.\u00a0<\/p>\n But that bet got a lot more complicated when Trump\u00a0weighed in<\/a>\u00a0last month to argue that a highly-valued greenback is a \u201ctremendous burden\u201d on US companies, and chose\u00a0strong-dollar skeptic<\/a>\u00a0and Ohio Senator JD Vance as his running mate.\u00a0<\/p>\n Roughly two-thirds of respondents to a Bloomberg MLIV Pulse survey conducted between July 22 and 26 said they expected a second term for Trump would ultimately undermine the greenback as the world\u2019s reserve currency. Still, 26% saw the dollar as the best refuge from volatility if he were to win.<\/p>\n Given the competing impulses, the Fed\u2019s shift is arguably the more consequential driver for the dollar going forward. The Bloomberg Dollar Spot Index suffered its worst day in more than two months on Wednesday as Powell confirmed the central bank\u2019s growing bias toward easing.<\/p>\n A softer dollar is \u201cthe path of least resistance until the election outcome reduces the uncertainty associated with post-election trades,\u201d Steven Englander, head of global G-10 FX research at Standard Chartered<\/a>, wrote Thursday.\u00a0<\/p>\n Prison companies GEO Group<\/a> Inc. and CoreCivic<\/a> Inc. are expected to benefit in case of a Republican sweep, given Trump\u2019s tough stance on immigration.\u00a0<\/p>\n But their shares have slid since Biden dropped out of the race.\u00a0<\/p>\n By contrast, gun stocks like Smith & Wesson Brands and Sturm Ruger & Co. are faring well so far.<\/p>\n Bank stocks \u2014 which have been called out as a key potential beneficiary from a Trump administration because of optimism for regulatory relief \u2014 have largely held on to their July gains amid the broader market\u2019s rotation trade.<\/p>\n Meanwhile, Trump Media & Technology Group Corp., parent of Truth Social, has slumped over 20% since July 21. The stock had seen some wild swings lately among all the election headlines.<\/p>\n \u201cWhat was viewed as a cake walk has become very competitive leading many to question whether the Trump Trade was done a bit premature,\u201d said Peak Capital Management CEO Brian Lockhart. \u201cI expect there to be a lot of \u2018noise\u2019 in the markets that will likely mean higher levels of volatility through the election.\u201d<\/p>\n Belying expectations the yuan will be hammered as Trump trades gather momentum, the offshore unit strengthened 1% against the dollar in July \u2014 the best performance since November. Recent gains in the yuan have been partly driven by a surge in the yen, with the two currencies increasingly moving in\u00a0lockstep<\/a>. \u00a0<\/p>\n Investors agree that Chinese assets remain at risk regardless of who wins the election, though they\u2019ll likely fare worse under Trump. The former president has\u00a0floated<\/a>\u00a0slapping 60% tariffs on imports from China and 10% duties from the rest of the world.\u00a0<\/p>\n Harris may continue existing national security and industrial policy measures directed against the world\u2019s second-largest economy. The developments can favor regions like India and defensive stocks such as Asia REITs, which are less exposed to trade risks and stand to benefit from a lower rate environment, said Ray Sharma-Ong, head of multi-asset investment solutions for Southeast Asia at abrdn.\u00a0<\/p>\n Rising doubt that Trump will get a chance to implement his pro-crypto agenda has\u00a0undermined Bitcoin<\/a>\u00a0in recent days.\u00a0<\/p>\n The original cryptocurrency has become something of a proxy for Trump\u2019s odds of returning to the White House after he pledged to make the US the \u201ccrypto capital of the planet and the Bitcoin superpower.\u201d<\/p>\n\n
Bond Trades\u00a0<\/h3>\n
Dollar<\/strong><\/h3>\n
Stocks\u00a0<\/strong><\/h3>\n
China Risk\u00a0<\/h3>\n
Cryptocurrencies<\/h3>\n