US elections: US financial markets in party mood after Trump’s election victory

The election of Donald Trump as the new US President has put the financial markets in the USA in a party mood. The stock markets and the US dollar are increasing significantly, and Bitcoin is reaching more and more records. Only the price of gold is coming under pressure.

The strong reaction may come as a surprise, since before the election the financial markets had largely assumed that Trump would win. In fact, the economic policy plans of the former and new US president are so big that they are already leaving deep marks on the financial markets.

One of Trump’s concerns is the introduction of tariffs and lower taxes. He also wants to put a stop to illegal immigration. The measures are likely to lead to higher inflation in the USA. Economists therefore expect that the scope for further interest rate cuts by the US Federal Reserve will decrease. The dollar therefore appreciated.

In New York, records were celebrated on Wall Street and the Nasdaq stock exchange after Trump’s election. “Trump is seen as a supporter of lower corporate tax rates, deregulation and industrial policies that promote domestic growth,” says analyst Marc Pinto from asset manager Janus Henderson. This could give the US economy further stimulus and benefit risky assets such as stocks.

With the Senate and most likely also the House of Representatives behind him, the Republican can probably rule through and does not have to fear any resistance from Parliament. Trump’s recent personnel decisions also indicate that he is surrounding himself with loyal ministers who are likely to consistently implement his agenda.

From a European perspective, this is bad news for companies that are heavily dependent on exports, for example in the automotive industry. In this respect, investors on Europe’s stock exchanges only reacted briefly euphorically to Trump’s election victory. Germany, with an economy focused on exports, would be particularly hard hit.

Trump has announced new tariffs of 10 to 20 percent on imports from Europe. Economists fear a trade war with the EU. If Trump actually imposes a 20 percent tariff on imports from the EU and a 60 percent tariff on imports from China, German exports to the USA could fall by 15 percent, estimates the Munich Ifo Institute.

DAX cannot keep up with US stock exchanges

The German leading index Dax did not achieve a record high in this environment. “The Dax cannot keep up with the ever-new record highs on Wall Street,” says analyst Jochen Stanzl from the trading company CMC Markets. Trump wants to pass a variety of laws from day one, including punitive tariffs. After the end of the traffic light coalition, Germany is currently in an election campaign and would hardly be able to act politically.

A big loser since Trump’s election victory is gold. The price of gold recently fell below $2,600 per troy ounce (around 31.1 grams) at times. This puts the price almost $200 below its record high, which it set at the end of October.

The price of gold initially suffers from the increased dollar exchange rate. This makes gold more expensive for investors from other currency areas. In addition, the increased interest rates on the financial markets are weighing on prices. After all, gold itself does not generate any interest.

Experts do not expect gold prices to continue to weaken

However, Commerzbank expert Carsten Fritsch does not expect gold prices to continue to weaken: “The Fed’s interest rate cut last week and the prospect of further interest rate cuts continue to speak in favor of gold.” In addition, gold is likely to remain in demand as a hedge against inflation. “If Trump were to influence the Fed’s monetary policy and the Fed did not respond to higher inflation to the extent necessary, the price of gold would actually rise significantly,” writes Fritsch.

Trump had already put pressure on Fed Chairman Jerome Powell during his first term in office and asked him to cut interest rates. He also criticized Powell during the election campaign. Trump’s entourage even suggested abolishing the US Federal Reserve.

Warning against excessive crypto euphoria

The cryptocurrency Bitcoin benefited particularly strongly from Trump’s victory. On Tuesday it broke the $90,000 mark for the first time. Before the election it cost less than $70,000. Trump described himself as the “crypto president” during the election campaign.

At a major Bitcoin conference in Nashville, Trump promised to leave the crypto market largely unregulated and to provide cheap electricity for calculating new Bitcoin coins (“mining”). A state Bitcoin reserve is even to be set up. In his first term in office, he expressed skepticism about Bitcoin.

However, experts warn against excessive euphoria. “It remains completely unclear to what extent Donald Trump will actually loosen the regulatory thumbscrews at the start of his term in office,” writes analyst Timo Emden from Emden Research. “Volatility could become more pronounced in the coming days.”

The rise of Dogecoin, which was actually founded as a fun currency, is also notable. Elon Musk, who is supposed to work for Trump in the government, is associated with Dogecoin. The rate more than doubled after the election.