- Equites: The Republican sweep will translate to US outperformance over Europe as pro-growth policies will be fuelling economic and earnings growth in the US, while European markets face headwinds such as tariffs and geopolitical tension
- Credit: Credit remains well bid by pro-economic policies and the penchant for less regulations under Republican regimes. IG and higher quality HY bonds (BB segment) will be well supported
- Rates: Central banks in regions that have a strong incentive to ease policy to support their economies will be key beneficiaries under a Republican sweep where tariff hikes are on the cards
- FX: Policies implemented are likely inflationary, which may slow down the pace of rate cuts by the Fed, making the USD stronger relative to other major central banks
- Gold: Trump’s protectionist policies would result in uncertainties globally, boosting demand for gold as a safe-haven asset and tool for diversification purposes
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Red Sweep: Seismic change in US policies on the cards. The Americans have spoken. With Trump winning both the electoral college and popular vote, Americans have made themselves clear on who they want as the next President of the United States. The recapturing of the Senate means that Republicans are on course to vastly reshape Capitol Hill in the years to come while Democrats confront a looming existential crisis. Clearly, the election outcome shows that concerns over the economy and illegal immigration ranks high on voters’ agenda and so, expect significant policy changes to come as Trump assembles a new team to steer his presidency.
The Trump victory has already seen “Trump trades” going into overdrive with S&P 500 up 2.5%, US Dollar Index (DXY) rallying 1.6% and UST 10-year yield up 16 bps. Expect dollar strength to stay as the markets price in higher bond yields on expectations of rising tariffs and bond issuances to fund the taxation cuts. A Trump 2.0 will bring sweeping policies changes and these are the likely scenarios:
- Tax Cuts: To revitalise domestic manufacturing and jobs creation, Republicans are on course to lower corporate tax rates from 21% to 15% for US-based companies. This reduction in tax burden not only enhances the competitiveness of US companies, it also helps drive innovation as companies reinvest these savings into their businesses.
The Republicans are also on course to expand the Tax Cuts and Jobs Act (TCJA) across all income levels, which will support US domestic consumption. However, such tax cuts come at a price. According to estimates from the Committee for a Responsible Federal Budget, the tax reduction for individuals/business and the extension of TCJA will translate to USD9.35tn increase in fiscal costs. - Trade War: Trump’s protectionist stance is set to be revived and this could encompass the imposition of a blanket 10% tariff on most imports, along with significantly higher tariffs of up to 60% on Chinese goods. This, along with renegotiations of trade deals like the USMCA, are expected to escalate trade tensions.
On a global level, the IMF cautioned that the tariff hikes could potentially reduce global GDP by 0.8% in 2025 and 1.3% in 2026. But that said, we are also mindful that election rhetoric may not necessarily translate into actual implementation given the potential for retaliation from trade partners, and above all, Trump’s transactional style of policy making. The situation remains fluid on this front. - National Debt: Republican sweep is expected to add a net c.USD7.75tn to the national debt from 2026 to 2035, driven by policies such as the extension of TCJA and a reduction in business taxes.
To fund these taxation cuts, the Republicans will: (a) Increase revenue from tariffs, (b) Implement cuts to entitlement programs like Medicare and Medicaid which provide healthcare for seniors and low-income earners, (c) Eliminate energy-related tax credits used to incentivise renewable energy development. However, these initiatives will nonetheless be insufficient to offset revenue losses from the tax cuts. - Geopolitics: Expect geopolitical fragmentation to deepen, with exporters to the US to experience margin pressure. But the eventual outcomes remain fluid given the likelihood of retaliation from US’s major trading partners. Our economists, meanwhile, holds a sanguine view for Asia on the basis of the region’s strong ties with US and China. The region’s openness to trade and strong balance sheets will put them in good stead during Trump 2.0.
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