Markets have been waiting for 20th January and the 47th US President’s inauguration for some time, with trade policy and tariffs set to take centre stage. There is much uncertainty, and about what specific powers Trump will use so market volatility will be high. Reports suggest that at least 100 executive orders are ready for signing on the new President’s first day in office. Consensus believes that initially we will see trade policy, immigration enforcement and broad principles on deregulation. Any real news on fiscal policies will take longer to enact and come later in the Trump term.
The markets are seemingly set up for China tariffs to arrive fairly quickly, made possible by existing presidential authorities. The key question is whether Trump’s bark is bigger than his bite – does he kick off with big tariffs from day one, or these are phased in over time? Long dollar positioning is currently relatively stretched going into this second Trump administration, with stock markets more choppy over the past few weeks.
Fast implementation of tariffs will likely see more dollar upside as US Treasury yields move back up towards 5% on the 10-year. Gold could struggle initially in that environment. The flip side and a gradual stepping up of tariffs, of say 2-5% per month could see the greenback slide and boost gold bugs. Sectors of the equity market may react differently with energy, finance and crypto standing to benefit if Trump loosens policy substantially. Bank and energy stocks have already gained ahead of the inauguration while a sweeping aside of the regulatory overhang could push bitcoin to fresh record highs. In summary, the speed and realisation of all policies will be crucial for price action.