Global stocks rally on growth hopes. The conclusion of the US elections saw most major equity benchmarks rising to fresh highs on the back of expectations that policies under a red sweep would contribute to less stringent regulations, lower taxes, and higher growth. Following the 50 bps cut in September, the Federal Reserve lowered the Fed Funds rate (FFR) by 25 bps to a range of 4.5% to 4.75%. The S&P 500 Index and Dow Jones both gained 4.72% over the past week, while the NASDAQ Composite surged 5.85%. Europe markets slipped amid concerns on the impact of new US policies on the region’s trade and economic growth and political uncertainty in Germany. The STOXX 600 and FTSE weakened 0.75% and 1.28% respectively. Japan equities rose over the week with the Nikkei 225 gaining 3.8% and the broader TOPIX up 3.7%. Chinese stocks surged as Beijing’s unveiling of fresh stimulus measures offset concerns about potential US tariff hikes. The Shanghai Composite jumped 5.51% while the Hang Seng added 1.08%.

Topic in focus: US banks set to benefit from looser regulations under Trump. The US financial services sector is expected to be a key beneficiary of Trump’s re-election due to expectations of looser financial regulations. While the President-elect has yet to announce who will assume the top financial roles in his administration, it is widely expected that easing capital rules and more liberal merger approvals are on the cards. In particular, the Basel III endgame proposal necessitating large lenders to hold more capital is likely to be diluted which should in turn boost lending for banks. This expected shift in regulatory stance has given the sector an immediate boost post-election.

Beyond providing a short-term lift, a Trump administration is expected to boost financial services in more lasting ways as well. For example, the merger and acquisition landscape, which has been largely dormant over the past few years due to the tight regulatory backdrop, is expected to see a revival with potentially less stringent anti-trust policy and shorter approval timeframes back in play. This will be a huge positive for large banks and their investment banking divisions which have seen slumping deal flows of late.

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