With the announcement that Donald Trump will be the next president of the United States, Dr. Dan Appleby, CIO of the investment management firm Blackfinch Group reflects on the immediate financial impact of Donald Trump’s 2024 victory in the U.S. election. Dr. Appleby also reflects on how Trump’s policy intentions are influencing markets, with specific implications for U.S. government bonds, inflation, and global trade.
Dr. Dan Appleby of Blackfinch states:
“Just as stock markets are rising in the initial reaction to Trump’s landslide victory, US government bond prices are falling. At the time of writing, the US ten-year government bond yield is up over 19 basis points, which leads to losses for bond investors given the inverse relationship of bond prices to yields.
The biggest issue for bond prices is the prospect of higher inflation. Extending individual tax cuts by prolonging the TCJA should be stimulative for economic growth, but risks higher inflation. And these tax cuts have to be paid for somehow, yet would come at a time when US government debt as a percentage of gross domestic product (GDP) is forecast to breach 130%, surpassing its peak during the Second World War.
Trump intends to pay for these tax cuts, in part, by applying punitive trade tariffs to China and, to a lesser extent, the rest of the world. Current expectations are for a 60% tariff to Chinese imports, and a 10% rate applied elsewhere. Economists differ with Trump in who will pay for these tariffs. Bloomberg estimates suggest these trade policies will increase inflation by 2.5% and lower GDP by 0.5% after two years. The conclusion here is that it is the American consumer that will ultimately pay the price.”
