The Trump Effect | Calamatta Cuschieri

Stocks down, no – wait! Stocks up, slightly down again, recovering now… Meh, they’re mixed. While not uncommon in the stock markets, volatility and violent moves from one side to another usually mean one thing – uncertainty.

European markets hop on the Trump roller coaster

In the immediate wake of Trump’s imminent win, markets sold off having anticipated a victory for Hillary Clinton. During the early hours of European trading, markets began warming up to the idea of a pro-business, pro-tocks Trump presidency and rallied from a significant intraday low to end the day higher. The sentiment was also positive for the next day, but seemed to sour somewhat on Friday. Some stock markets managed to end the day higher nonetheless, while others gave up some gains by the time the closing bell started ringing.

... while bond markets sat on a one-way train

The bond market was more like a one-way train however. After an initial “whiplash” – some core sovereign bonds saw their prices rise in the very short-term after the result was clear, only to correct within a few minutes – price action was pretty much one way, and that’s down. The sell-off was noticeable in sovereign paper – yields on US 10-year Treasuries rose approximately 55 basis points from their lows, and European sovereign gave up anywhere from 20 to 40 basis points across both core and peripheral paper.

Trump's fiscal policy brought about higher inflation

The main theme here is a faster return to inflation and, consequently, higher inflation expectations brought about by Trump’s seemingly high willingness to engage in an aggressive and expansionary fiscal policy. While the impact of this on stocks is traditionally neutral to positive, the effect on bonds is definitely negative – assuming the global economy keeps running smoothly without any major hiccups.

The extent to which that is true will depend on the policies adopted by the next US President. Investors will definitely want to be on the lookout for clues which might determine the longer-term performance of their bond portfolios as we approach what might be a tectonic shift in the fixed-income landscape.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investments Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.