Trump’s Victory Boost Dollar Value, May Lower Oil Prices

Donald Trump’s victory in the just concluded 2024 US presidential election has sparked a surge in the U.S. dollar, which rose over one per cent against major currencies, reaching its highest level in four months.

Analysts attributed this increase to anticipated expansionary fiscal policies, including tax cuts and infrastructure spending, which could stimulate economic growth and drive up interest rates.

Conversely, oil prices are expected to decline as Trump’s pro-drilling stance may lead to increased domestic supply amidst rising inventories and a stronger dollar

The global stock markets, however, recorded mixed performance as investors digested Trump’s defeat of his Democrat rival Kamala Harris.

Both stock futures and Treasury yields jumped immediately on unfolding results, the seeming clarity of which was a relief to some who feared days or even weeks of political and legal wrangling over contested votes.

Small cap stocks captured by the Russell 2000 have so far proven the biggest equity index winners — soaring almost 6% ahead of Wednesday’s bell.

S&P500 and tech-led Nasdaq futures were both up almost 2% and, significantly, the clear result saw the VIX ‘fear index’ of equity volatility plunged to its lowest in more than month — back below historical averages.

Wary of another fiscal stimulus via Trump’s promised tax cuts on top of an already six per cent-of-GDP budget deficit, the Treasury was whacked — with the benchmark 10-year yield hitting its highest since July just shy of 4.5 per cent.

According to Reuters, trading activities as at November 6, 2024 showed that NYSE composite rose by 1.54 per cent to close at 19,763.79 points, while NASDAQ composite index appreciated by 2.51 per cent to 18,902.43.

Meanwhile, FSTE 100 index declined by 0.07 per cent to close at 8,166.68 points, Hang Seng Index depreciated by 2.23 per cent to 20,538.38, while Shanghai SE composite index declined by 0.09 per cent to 3,383.81.

Senior market analyst At FXTM, Lukman Otunuga, has said it may not necessarily be good news for import and oil dependent countries such as Nigeria.

Voters in the United States of America had chosen Republican Donald Trump as its 47th president following a tight race for the White House, with Republican Trump having secured 277 electoral votes taking control of the Senate.  If the House comes under his control, this will be a “red sweep” scenario.

According to Otunuga, Trump’s victory may pressure oil prices as he is seen pushing for a further increase in domestic oil and gas production, leading to increased supply in the long term. In addition, his policies could see a boost in US growth – triggering inflationary pressures.

“Should this prompt the Fed to keep interest rates higher for longer, a stronger dollar may drag oil prices lower as a result. This could be bad news for major oil producing countries who acquire most of their revenues from oil sales.

“For Nigeria, the combination of lower global oil prices and a stronger dollar could add to its woes as it navigates a rough period.” He noted that assets that could be burned by Trump’s return to the White House include gold which had dropped as much as 1.5 per cent on the back of a stronger dollar and rising Treasury yields.

Noting that the prospect of slower Fed rate cuts could limit upside gains, he pointed out that currencies of major US trading partners, such as Euro, Chinese Yuan and especially Mexican Peso have all weakened against the dollar.

European stock indices had flashed red due to concerns over the impacts of Trump’s proposed tariffs on Europe, as Chinese stock indices slipped amid renewed fears over US-China trade tensions.

Trump’s return to the White House will most likely set the market tone for the next few years with the USD, Bitcoin and other assets tied to the “Trump trade” the biggest winners. Investors with some skin in the game have already experienced how markets reacted under Trump between 2017 – 2021.

Trump’s unpredictability, policy uncertainty and tariff wars with China left investors on edge. This and other major themes triggered sharp moves on the Vix index during his term. Market volatility jumped over 60 per cent during Trump’s previous administration, from 2017 until 2020. Since then, volatility fell about 10 per cent under President Biden.

Otunuga noted that Trump’s return to the White House is likely to trigger fresh levels of volatility across the globe. “Trump’s proposed tariff increases in Europe and China could spark a global trade war.

“If this pushes up the prices for American consumers, a return of inflation may spell higher interest rates – boosting the dollar.  An appreciating dollar could hit gold prices along with emerging market currencies. On the geopolitical front, Trump has already vowed to “stop wars” and swiftly end the war in Ukraine. Any major shifts in US foreign policy that escalate tensions could trigger risk-aversion.”