Donald Trump’s return to the White House signals heightened economic, trade and geopolitical uncertainty, as investors anticipate the return of his unpredictable policy style.
Known for making sweeping statements on social media that may or may not materialise, Trump’s erratic approach to policy making could send markets on a volatile ride, AMP’s Shane Oliver said in a market note.
“Trump’s policy agenda is somewhat schizophrenic for investment markets in that it includes some very pro-market aspects – with tax cuts and deregulation – but some negative aspects – notably around tariffs and immigration – and the market impact will ultimately depend on what dominates,” Oliver said.
While Trump’s push for a strong stock market, alongside political pressure to lower the cost of living, suggests that his more populist policies – such as aggressive tariffs – may be tempered, Oliver said it remains unclear how this will play out in the short term.
“Trump’s desire to see shares go up, political pressure to bring down the cost of living (whereas big tariff hikes would do the opposite) and fiscally conservative House Republican’s will hopefully keep a lid on Trump’s populist inflation-boosting tendencies (including the tariffs), but this may not be clear for a while,” the chief economist said.
He, however, advised investors to expect a flurry of announcements in the week ahead, with key topics likely to include immigration, energy deregulation, financial deregulation, cryptocurrency, the federal workforce and tariffs.
“Tariffs are likely to be ultimately less than the 10–20 per cent general tariff, 25 per cent on Canada and Mexico and 60 per cent on China as flagged in the campaign and immediately after,” Oliver said.
“Some reports suggest that they may be phased in but this may only make them more inflationary and is contrary to Trump’s go in hard upfront negotiating style. Treasury Secretary nominee Scott Bessent’s confirmation hearing comments suggest that tariffs on China are likely to be more aggressive but those on the rest of the world will be for negotiation purposes.”
For Australia, the impact of these tariffs may be more subdued, Oliver said, noting that with a trade surplus with the US and only 4 per cent of its exports going there, Australia is less vulnerable to US tariffs.
However, he cautioned that the country remains susceptible to tariffs on China, which accounts for 35 per cent of Australian exports.
Regarding bonds and stocks, Oliver noted that with bond yields and the US dollar already on the rise since September, and stock market fluctuations since early December, it’s possible that some of the uncertainty surrounding Trump’s return has already been priced in.
This could lead to a pullback in bond yields and the US dollar, with shares potentially rallying if Trump proves less disruptive than expected.
Expounding on the return of Trump on the Relative Return Unplugged podcast, Oliver said last week: “It almost seems like Trump is already president.”
He told the podcast that ultimately, his bet is that Trump’s policies lean to the positive side for markets.
“We won’t know that initially. It’ll take a while to work out precisely what Trump does, and he tends to come with a lot of noise and I think that noise will be a key feature of the year ahead. So anyway, I think ultimately, the lower interest rates and if we avoid recession, that’s good for share markets. But the issues around valuations and volatility flying from geopolitics and Trump and others mean just a more constrained and volatile return,” he said.
To hear more from Shane Oliver, click here.
