Market Response to Trump’s Rally Shooting Incident

The shooting on Saturday at former U.S. President Donald Trump’s election rally has increased his odds of winning back the White House, according to investors who expect a rise in bets on his victory.

Trump was shot in the ear during a Pennsylvania rally, an incident authorities are treating as an assassination attempt. Despite his face spattered with blood, Trump pumped his fist moments after the attack, and his campaign reported that he was fine following the incident.

Prior to the shooting, markets had already reacted to the prospect of a Trump presidency by pushing the dollar higher and anticipating a steeper U.S. Treasury yield curve. These moves continued slightly during Monday morning’s Asia trade.

Ten-year Treasury futures dipped about 13 ticks and the dollar strengthened against the euro and yen. U.S. stock futures edged higher.

Shooting incident may sway tight Trump-Biden election race

This incident marks the first shooting of a president or major candidate since the 1981 assassination attempt on Republican President Ronald Reagan. It could significantly impact the closely contested Nov. 5 rematch between Republican Trump and Democratic President Joe Biden, which has been tight in polls.

“From memory, Reagan went up 22 points in the polls after his assassination attempt. The election is likely to be a landslide. This probably reduces uncertainty,” said Nick Ferres, chief investment officer at Vantage Point Asset Management, referring to polls that showed a sudden increase in support for Reagan after the attempt on his life.

World leaders and U.S. politicians condemned the shooting, while influential figures, including Tesla (TSLA.O) chief Elon Musk, and hedge fund manager Bill Ackman voiced their support for Trump.

According to Reuters/Ipsos polls, the main concerns for voters have been immigration and the economy. Despite Biden’s efforts to benefit from solid growth, slowing inflation e ainda low unemployment, voters perceive Trump as the stronger candidate for the economy.

Gold could reach record highs, as dollar and crypto expected to jump

Market analysts anticipate that investors will initially favour traditional haven assets and possibly lean into trades closely linked to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt.
 
“Undoubtedly there’ll be some protectionist or haven flows in the Asia early morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I’d suspect gold could test all-time highs, we will see the yen getting bought and the dollar, and flows into Treasuries too.”

Crypto investors provided an early glimpse into the election’s potential impact by driving up the price of Bitcoin to over $60,000 on Saturday evening. Trump has shown support for crypto, while some of Biden’s supporters are pushing back against the SEC and its management of the industry.

Other assets linked to the so-called Trump trade, such as shares of energy firms, private prisons, credit-card companies, and health insurance firms, also saw positive movement.

Currency markets prepare for volatility after Trump shooting

Garfield Reynolds, Asia team leader for Bloomberg Markets Live, anticipates currencies will lead Monday’s Asian markets in reacting to the weekend’s shooting. He notes potential for heightened volatility, with clear readings challenging due to Japan’s national holiday impacting liquidity.

Wall Street’s new outlook post-Trump shooting

Pre-market trading in the U.S. is set to commence Sunday evening, marking Wall Street’s initial assessment of how the assassination attempt on Donald Trump will impact markets.

Ian Bremmer, president of political risk research and consulting firm Eurasia Group, suggests that the shooting at a campaign rally increases the likelihood of a Trump victory in the presidential election. Elon Musk, CEO of Tesla, has already endorsed Trump, and Bill Ackman, CEO of Pershing Square, plans to formally endorse him soon.

Following President Joe Biden’s disastrous debate performance last month, Wall Street started pricing in a potential Trump victory in November. Bond yields surged in anticipation that tax cuts passed in Trump’s first term would be extended and widen deficits.

However, yields dropped sharply over the past week as new inflation data gave the Federal Reserve more flexibility to consider rate cuts. Federal Reserve Chairman Jerome Powell has also adopted a more dovish stance.

However, the assassination attempt has disrupted the political landscape up and down the ballot, making control of Congress and the size of the winning majorities crucial factors as well.

Inflation and the Fed

Analysts have cautioned that Trump’s proposals to implement across-the-board tariffs, extend tax cuts, and limit immigration could fuel inflation. This could dampen expectations for more aggressive rate cuts by the Fed, which Citi Research suggested may lead to a 200 basis points of easing.

Meanwhile, Powell and other central bankers have maintained that the Fed is data dependent and won’t preemptively adjust policy based on expected fiscal policies. This implies the Fed will maintain its current course until actual conditions change.

However, financial markets, including stocks and bonds, are sensitive to expected policy changes, and often react quickly. And amid a recent report by the Wall Street Journal that said Trump’s allies have drawn up plans to undermine the Fed’s independence, an election victory could heighten concerns that the Fed will monetise U.S. debt by increasing Treasury purchases and fuelling inflation.

Former New York Fed President Bill Dudley warned on Bloomberg TV last month that it’s not easy to reconfigure the Fed, “just the mere attempt to take control of the Fed, to diminish the Fed’s independence, could be the spark that rattles markets.”

Energy sector faces uncertainty

If Trump wins, Biden’s climate change policies would likely be replaced by pro-fossil fuel policies. This scenario is good for oil and gas stocks, but bad for renewable energy stocks.

The outlook for electric vehicle stocks could be more mixed. Biden has promoted U.S. production of EVs and is increasing tariffs on Chinese EVs. However, consumer preference has recently leaned towards hybrids and internal-combustion cars, and some conservatives have dismissed EVs as too “woke.”

Trump has indicated his intention to reverse current laws supporting electric cars, yet he is also a “huge fan” of Tesla’s Cybertruck, according to Musk. This uncertainty has left hedge funds uncertain about how to approach Tesla stock.

Tech and the limits of Washington

In a Financial Times op-ed days before the recent shooting, market veteran Ed Yardeni cautioned against overestimating the influence of lawmakers in Washington, D.C. on the economy and markets.

He highlighted the growing role of technology in driving economic activity, noting that more than half of capital spending is directed towards technology, including record investments in software and R&D. Yardeni also emphasised the important role played by U.S. capital markets in financing for start-ups and innovations. He predicted that these factors should contribute to strong corporate earnings, which will send the stock market to new highs throughout the rest of the decade.

“History has shown that over time, the U.S. economy and stock market have done well no matter who is in the White House,” he said. He stated that under a Trump administration, two major risks would be a trade war that could hinder global growth and revive inflation, and rising federal deficits that could lead to a debt crisis. However, America’s system of political checks and balances is designed to moderate extreme policy actions from anyone in the White House.

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