Trump win sparks fresh nervousness on bond markets but sends stocks on Wall Street to record highs

Fresh nervousness has been sweeping bond markets after Donald Trump’s triumphant win. His policies look set to increase inflationary pressures and swell the US deficit even further, with knock-on effects expected for the UK economy. 10-year treasury yields have jumped as traders assess the impact that the twin promises of tariffs and tax-cuts will have on the price rises and on US government debt levels. Gilts often move in tandem with treasuries and this special relationship is playing out today, pushing up UK borrowing costs sharply, with 10-year gilt yields rising to the highest level since the Financial Crisis in 2008.?

Not only is a raft of tariffs expected to be imposed next year if Trump wins, which will push up the price of imported goods for American shoppers, his vow to kick out immigrants with waves of deportations could also have economic ramifications, potentially pushing up wage bills for companies. His pledges of tax cuts are also considered to be inflationary and are also causing wariness about the huge US deficit swelling further. There are risks that inflationary pressures in the US, prompted by higher tariffs will be exported. As the dollar rises, countries which import commodities priced in USD may also see prices increases, which will either need to be absorbed by companies or passed onto customers. If other countries started to feel onerous effects of higher tariffs on their economies, there may be more demand for the dollar as it is considered to be a safe haven

UK government bonds had already been skittish, with sentiment souring after concerns about the amount of borrowing the Labour administration was taking on. Now Trump’s win has piled on further pressure. Concerns about the inflationary knock-on effect of the fresh wave of tariffs promised by Trump are seeping through the markets. There is also concern that his trade policies could hold back Britain’s economic growth. The fear of a stagflation scenario emerging in some economies appears once again to be stalking markets.

However, stocks on Wall Street have reached fresh record highs as investors assess a sweet rush of stimulus for the US economy from Trump tax cuts and deregulation plans. Tesla is one of the big gainers as Elon Musk’s endorsement of Trump is expected to reap rewards for the EV maker. Donald Trump shifted his stance on electric vehicles after winning Musk’s support, and although it’s still highly unclear what would happen to subsidies for EVs, it’s likely a more conciliatory policy will be incoming. He’s likely to want to keep Elon Musk onside and if the promised government advisory role comes through Musk will wield more influence.

The FTSE 100 has erased gains as bond market volatility has taken off, and investors have switched their focus to concerns about the macro-economic environment. If Trump’s most radical plans for tariffs are imposed there are deepening concerns about the knock-on effect on the UK and other European economies. The impact of interest rates potentially staying higher-for-longer is weighing heavily on housebuilders, given how it’s likely to seriously affect buyer affordability and their ability to swallow price hikes. Persimmon and Taylor Wimpey and Barratt Redrow are among the top fallers on the FTSE 100. Mining stocks are also losing ground sharply amid concerns about the implications of Trump’s tariffs plans on global growth and demand for metals and minerals.

?However, with sterling still markedly weaker against the dollar it’s helped other global businesses hang onto some gains. A cheaper pound helps boost the revenues of companies with significant overseas earnings. InterContinental Hotel Group which has around 4,000 hotels run under its brands in the US is expected to gain from a Trump tax cut spree and the stronger dollar, making it the top gainer on the FTSE 100.? Ashstead, a huge industrial equipment rental company, has also gained ground given expectations of higher infrastructure spending in the US where it makes most of its revenues.

?President Trump has been critical about the way NATO has been funded and has demanded other members start allocating much bigger parts of their budgets to defence. If he comes to power, it’s likely these calls will intensify and, unless they are met, there is the risk that the core commitment to the principle of collective security could be diluted. It’s likely that defence spending will be increased across the NATO alliance, which is set to benefit companies with ongoing military contracts.? UK-listed aerospace stocks are among the gainers today, with BAE Systems up 4% in mid-afternoon trade, as investors assess they are likely to benefit from a fresh round of investment into bolstering armed forces.

Volatility on the markets can always be unsettling but at a time of political and economic turmoil it’s best to take a long-term view. Time in the market, rather than timing the market is always a better strategy, and markets have a particular knack of riding out the ups and downs once initial shocks have subsided.