Cryptocurrencies have also gained, partly because of Trump’s apparent support for digital tokens but mainly because of the prospect of political chaos in the US.
The implications for the global economy are profound. There are already fears the Fed has kept rates too high for too long, with the US labour market slowing more sharply than expected in recent months.
Moreover, if the Fed gets cold feet about easing policy, property markets across the world would be hit hard, as would emerging markets. The nightmare scenario for the US central bank is to cut rates this year only to have to raise them again next year. Investors are underestimating the risk of a Fed policy blunder.
While such a dramatic depreciation is unlikely to occur for a variety of reasons, JPMorgan notes there is “little trace of geopolitical risk premium” in China’s currency market. This increases the risk of a sharp adjustment that would spill over into other Asian markets, potentially triggering a full-blown regional sell-off.
01:19
Chinese retailers rush out souvenir T-shirts hours after Trump rally shooting
Chinese retailers rush out souvenir T-shirts hours after Trump rally shooting
Some investors believe this is reason enough not to trade the election, or at least wait until September or October, yet there is a fine line between waiting for the right moment and being complacent. A contested result, a full-fledged constitutional crisis, mounting concerns about the US fiscal deficit and credit rating downgrades are distinctly possible.
That the benchmark S&P 500 equity index hit a fresh all-time high on Tuesday shows markets are still not taking the economic and geopolitical consequences of a second Trump term seriously. If not now, then when?
Nicholas Spiro is a partner at Lauressa Advisory
