Following a month of Trump, global markets are ready for a reality check
November was marked by distinct winners and losers following Donald Trump's U.S. election victory on November 5. The "Trump trade" had a notable impact, rewarding U.S. stocks and the dollar while penalizing tariff-sensitive assets, from European exporters to Mexico's peso. Wall Street surged, the dollar rose 2% against major currencies, and bitcoin saw a sharp increase.
However, December could bring volatility, as the Trump trade faces risks such as potential bond market pushback against fiscal policies, rising inflation due to tariffs, and supply chain disruptions.
BCA Research warns that elevated equity valuations may reflect investor complacency, as a more challenging market environment isn't yet fully priced in.
Here's a closer look at some key assets in the spotlight:
- Currency Struggles
The euro faced its worst monthly decline since early 2022, dropping nearly 3% to around $1.05, due to U.S. tariff concerns, political instability in Germany and France, and a regional economic slowdown.
Analysts predict heightened volatility in the $7.5 trillion-a-day currency markets, with debates on how low the euro might fall and whether Trump’s policies will boost the U.S. economy while others falter.
Mexico's peso lost 2% against the dollar in November, while sterling dropped slightly over 1%. China's offshore yuan saw a decline of approximately 1.5%.
Monex Europe’s Nick Rees posed a key question: "Does Trump's election signify a fundamental shift in the global economy, or is it just a market overreaction?"
- Bitcoin: Boom or Bust?
Bitcoin was the standout performer in November, surging by 37%, briefly approaching the $100,000 mark, driven by optimism for a more crypto-friendly regulatory environment under Trump.
This surge mirrors February’s spike when bitcoin exchange-traded products saw a rush of investment. Some believe reaching $100,000 would mark bitcoin’s mainstream acceptance, while others warn of a speculative bubble that could lead to sharp declines.
"If bitcoin breaks through $100,000... even more people may consider crypto," said AJ Bell analyst Dan Coatsworth.
- Tech Stocks Under Tariffs
Wall Street’s tech-heavy Nasdaq 100 enjoyed its best monthly performance since June, boosted by a 33% surge in Tesla (NASDAQ:TSLA) and rising AI enthusiasm around Nvidia (NASDAQ:NVDA), despite the chipmaker’s slower sales projections.
However, growing risks loom for tech stocks. Trump's tariff policies threaten supply chains, and excessive AI investment by tech giants like Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Amazon (NASDAQ:AMZN) is raising investor concerns.
Mikhail Zherev, manager of Amati Global Investors' innovation fund, noted, "There’s an intense arms race among hyperscalers, which could lead to over-investment." The European Central Bank warned of possible "adverse global spillovers" if an AI "bubble" bursts, negatively affecting the tech sector.
- Banking Divides
Investors have favored U.S. banks while turning away from European ones. The U.S. banking sector surged 13% in November, its best performance in a year, driven by deregulation hopes under Trump.
Meanwhile, European bank stocks fell 5%, as a weakening economy increased bets on rate cuts. Despite this, European banks have gained 16% this year, benefiting from relatively higher lending rates. Hedge funds continue to sell European bank shares, even amid solid performance, according to a JPMorgan report.
To improve performance, European banks need to ramp up fee-generating activities in asset management, wealth management, and investment banking, as suggested by Deutsche Bank.
- Bond Market Divergence
November may mark the month when major bond markets diverged. U.S. 10-year Treasury yields ended November largely unchanged, but the trend points higher.
U.S. borrowing costs surged by 60 basis points since mid-September, fueled by strong economic data and expectations for higher inflation and fiscal deficits under Trump's policies. Capital Economics forecasts a rise in Treasury yields to 4.5% by year-end.
In contrast, Germany’s 10-year yields dropped nearly 30 basis points, marking their biggest monthly fall of 2024, due to weakening economic activity, tariff threats, and the Russia-Ukraine crisis.
Meanwhile, Japan saw its biggest monthly yield increase since May, partly driven by speculation about a rate hike, following the post-Trump win depreciation of the yen.
Paraphrasing text from "Reuters" all rights reserved by the original author.
