US: Trump win and the global macro narrative. The market narrative has been one of softening growth, inflation, and interest rates ahead—the Federal Reserve lowered the Federal Funds rate by 25 bps to a range of 4.5% to 4.75% this week, following the 50 bps reduction in September. However, the election of Donald Trump as the 47th president of the US poses considerable challenges to this narrative. Now, it looks as though inflation and rates may not come down as much as market pricing suggests, and there is some risk of financial instability. This would be particularly on the cards if growth and inflation prove to be higher than forecasted by Fed officials in recent months and the central bank begins to walk back its guidance for many rate cuts next year.

What Trump 2.0 means for the US is relatively clear. His stance on taxes, immigration, public spending, cryptos, and federal bureaucracy are well known. Given his executive power and an enabling Senate, he would be able to enact lasting changes in all these areas. Expect more tax cuts, headline grabbing measures to deal with undocumented migrants, a wide berth for cryptos, and sweeping changes in the top layers of US bureaucracy.

Trump would want an economy supported by low interest rates, but his fiscal policy ideas would get in the way of the Fed’s intentions to cut rates by a lot, in our view. The Fed may cut a few times in 2025, but the policy easing picture could get considerably muddy if growth remains strong and inflation begins to rebound. A clash between the Fed and Trump may then ensue, causing consternation among investors. We are quite concerned about this scenario.

Tariffs are an unambiguous negative for Asia, but the region’s strong ties with the US and China would survive Trump. The region’s openness to trade and commerce makes it more attractive to investors, especially as the contrast with an inward-looking West becomes stark. Exports will face more scrutiny and there will more regulatory headaches, but the region’s scale, excellence in manufacturing and logistics, strong corporate and public sector balance sheets will hold them in good stead through Trump 2.0. China would likely push for more stimulus to boost domestic demand. This election marks a firm rightward shift of the US and Asia has to learn to live with it.

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