Former US president and current Republican presidential nominee Donald Trump survived an assassination attempt over the weekend. But despite this incident, markets have continued to climb the wall of worry, showing no signs of abatement.
In fact, the ASX 200 index this morning reached 8,000 for the first time, four and a half years after it crossed 7,000.
Over in the US, futures were up 0.2 per cent on a continuing reaction to news of lower inflation and increasing prospects for Federal Reserve rate cuts this year.
Speaking to InvestorDaily, AMP’s chief economist noted that markets are holding up well, possibly because Trump is not the current president and survived the attempt – a stark contrast to the 2.9 per cent drop in the US share market following John F Kennedy’s assassination in 1963.
However, Shane Oliver agreed that this weekend’s events have raised concerns about potential civil unrest in the US, which could ultimately impact markets and beyond.
“Unfortunately, we have seen it all before in the US with four presidents assassinated and numerous attempts, and one presidential candidate also assassinated (RFK in 1968),” Oliver said.
“The current rise in populism and political instability is a risk for markets in that if it continues to spiral into civil unrest, it could adversely affect economic conditions demanding a higher risk premium to invest in shares.”
Oliver isn’t the only one expressing concerns about US political stability, with scholars and economists worldwide agreeing the events this weekend brought the US dangerously close to civil war.
“There are obvious parallels to the late 1960s and the malaise of the 1970s,” Oliver said, reflecting on periods marked by significant social, cultural, and political upheavals.
However, he noted, “so far, markets are not too concerned as economic fundamentals are arguably stronger than in the 1970s”.
Following Trump’s shooting, his re-election odds have seemingly risen, coinciding with a rise in bitcoin trading. Trump’s earlier endorsement of bitcoin positioned him as the first pro-bitcoin nominee of a major political party, igniting discussions on its strategic reserve classification in the US.
Oliver commented on this, agreeing that “perceptions that the assassination attempt increases Trump’s prospects of winning and that Trump may be more positive towards cryptocurrencies” could be driving these trends.
Apart from bitcoin’s faith in a Trump victory, some fund managers are also predicting a win, including Nick Ferres, chief investment officer at Vantage Point Asset Management, who told US media: “The election is likely to be a landslide.”
What can be expected from a Trump presidency?
Under a Trump presidency, analysts anticipate a shift towards a more hawkish trade policy, reduced regulation, relaxed climate change regulations, and heightened inflation.
As such, Oliver believes a Trump victory runs the risk of weakening US democracy and US global alliances, and threatens a big ramp-up in protectionism and a further reversal in free trade.
On markets, the chief economist said that historically, markets have fared well in election years, with an average return of 12 per cent in an election year or a president’s fourth year since 1927.
“After Trump’s victory in 2016, shares soared 38 per cent to January 2018 as the focus in his first year was on business-friendly tax cuts and deregulation, but they fell in 2018 as the focus shifted to trade wars,” Oliver said.
“So, if there is a Trump victory, the share market’s reaction in the first 6–12 months will be heavily influenced by his sequencing of tariff hikes versus tax cuts,” he added.
At present, Trump is threatening to impose a 10 per cent tariff on all imports and a 60 per cent tariff on Chinese imports, which would take the average US tariff rate from around 2.5 per cent to around 17 per cent, surpassing the 3 per cent peak seen in his first term.
“This may be ‘maximum pressure’ bluster, but while ‘we shouldn’t take him literally, we should take him seriously’,” Oliver said.
A Trump presidency could also result in higher bond yields, according to Oliver, driven by increased inflation, budget deficits, and a stronger US dollar, influenced by heightened global economic uncertainty and the impact of US tariffs.
Other potential policy changes under a Trump administration could involve attempts to reduce the Fed’s independence through the replacement of Jerome Powell, alongside an increase in the budget deficit due to Trump’s proposed tax policies.
On the upside, Oliver cited Trump’s intention to slash regulation particularly benefiting the energy and financial sectors, which could help boost the supply side of the US economy via a boost in productivity.
