US equity futures traded within a narrow range while the dollar weakened on Monday, as markets braced for the inauguration of Donald Trump.
Bitcoin, in contrast, surged to a record high, reflecting the optimism surrounding Trump’s expected pro-crypto stance.
The market’s cautious optimism is tempered by the anticipation of a barrage of executive orders and policy changes, which are expected to quickly reshape the economic landscape.
Trump’s ‘business-friendly’ approach, but with a side of uncertainty
Trump is expected to implement a flurry of executive orders on day one of his presidency, with actions on immigration, tariffs, and energy, all part of a sweeping effort to rapidly implement his policy agenda.
While some investors anticipate these interventions will be beneficial for businesses, the unpredictability of Trump’s policies is raising concerns.
“One thing is 100% certain: Trump wants to keep the US stock markets in a good mood,” Dana Malas, a strategist at SEB, told Bloomberg.
There will be a strong growth- and business-focused policy (for the US), with inflationary elements, and expect abrupt shifts under the motto that agreements are there to be broken.
Potential for a Fed rate hike
“Any further stimulus that sparks a growth and inflation shock could lead to a Fed rate hiking cycle, for which markets are largely unprepared,” wrote Iain Stealey, international CIO for fixed income at JPMorgan Asset Management, highlighting the risks of unexpected policy shifts.
The potential for Trump to introduce additional fiscal stimulus, through tax cuts and higher tariffs, may cause the dollar to remain strong and Treasury yields to remain elevated.
Nomura Holdings Inc., joining T. Rowe Price, predicts a possibility of 10-year Treasury yields rising to 6% this year, while a smaller segment of bond traders believes that the Federal Reserve’s next move on interest rates may be to increase them, contradicting most predictions of imminent cuts.
Market volatility amid anticipation
Futures on the S&P 500 and Nasdaq 100 remained relatively unchanged, with Wall Street closed for a holiday on Monday.
The dollar, while retreating from a 13-month high it reached earlier this month, declined for the first time in three days.
The Stoxx Europe 600 index also steadied after erasing earlier gains at the open.
Bitcoin’s record surge and Trump’s ‘very good’ call with Xi
Bitcoin jumped by as much as 5.5% after Trump and his wife, Melania, unveiled their own memecoins over the weekend.
Trump’s conversation with Chinese leader Xi Jinping, which he described as “very good,” boosted Asian stocks on Monday, highlighting the interplay between political announcements and market movements.
Trump’s policies affecting global sectors
Even before assuming office, Trump is moving markets.
His plan to use emergency powers to boost domestic energy production, while reducing renewable energy sources, caused declines in companies such as Siemens Energy AG, Enel SpA, and Vestas Wind Systems A/S.
Trump’s stances on issues like the tech rivalry with China and climate change are also expected to influence investment decisions in various sectors, from semiconductors to electric vehicles and shipbuilding.
“It’s going to be extremely volatile in the coming days since it’s now confirmed that there’s going to be a lot of decrees signed in the hours following the inauguration,” Enguerrand Artaz, fund manager at La Financière de l’Echiquier, told Bloomberg.
Easing tensions and awaiting market reactions
The increased appetite for risk assets in Asia came after Trump and Xi’s discussion on trade, TikTok, and fentanyl, which could set the stage for early relations between the new administration and China.
As a potential signal of goodwill, TikTok began restoring service in the US on Sunday after Trump said he would delay the enforcement of a law requiring the app’s Chinese owner to find a buyer for three months.
The World Economic Forum’s annual meeting gets underway later Monday, with prominent figures such as Larry Fink, Ray Dalio, and Marc Benioff set to attend.
Trump is also scheduled to speak virtually to the group three days after his inauguration.
In the coming week, the focus will shift to the Bank of Japan’s scheduled policy decision on Friday, where about three-quarters of economists surveyed by Bloomberg expect a hike to its key rate.
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