Trump 2.0: what to expect

Trump 2.0: tariffs delayed for now, as Trump gets ready to take office

We are hours away from Donald Trump’s inauguration and the start of his second presidency. The markets had a strong reaction to his election victory, stocks soared to record highs, the dollar surged alongside US bond yields and crypto also received a boost.

As we await the inauguration, US blue chip stocks have backed away from their record highs, and US bond yields have also moderated along with the dollar. The question now is, how will Trump in office impact markets?

Trump to delay tariffs

The impact will hinge on Trump’s rush to sign executive orders. There have been reports that Trump could sign up to 100 executive orders today, these could include deregulation for the energy and financial sector, including crypto. However, reports this afternoon, suggest that the President won’t implement a package of tariffs today, instead he is planning to sign a memo that will direct Federal agencies to evaluate US trade relationships with China, Mexico and Canada, in particular.  It will also direct the agencies to investigate other US trade deficits and unfair trading practices. Conspicuous by their absence are actual tariffs, which suggests that a programme of tariffs is still under debate by Trump and his team.

Dollar sinks and stocks surge on tariff news

The market has immediately reacted to this, the dollar index has dropped sharply. The dollar index fell nearly 0.7% on the back of this report. USD/CAD is down more than 1%, its largest decline since 2023, as the Canadian dollar reflects the collective sigh of relief that Canada won’t be exposed to tariffs from day 1 of Trump’s second term. However, tariffs are expected down the line.

For now, European stocks have extended earlier gains, and US futures have also rocketed higher. We think that this news will have a positive impact on global stocks, including US chip makers, who rely on Chinese imports, and they could also rally on the back of this news.

Trump continues to keep markets on their toes

The sharp moves in the FX market on the back of the delay to Trump’s tariffs is a sign that the President’s second term could trigger excess volatility in financial markets. The markets had been prepped for tariffs for some time, this is why the CAD had fallen more than 3% vs. the USD since Trump won last year’s election, and the Mexican peso was down more than 2%. Hence, a delay to tariffs has triggered a relief rally.

China is also in Trump’s sights, and ahead of the inauguration, Chinese share prices increased. The CSI 300 was higher by 0.45% and the Hang Seng was higher by 1.7%, suggesting that concerns about tariffs could be easing as Trump takes office.

US stock and bond markets are closed on Monday due to the Martin Luther King holiday; however, this is unlikely to delay other executive orders that Trump is set to sign later today. These include declaring a national emergency at the US/Mexico boarder, rescinding Biden era DEI directives and unwinding limits on offshore drilling on Federal land.

Second Presidential term coudl be less frantic for financial markets

Trump 1.0 was notable because of the volatility that it generated. However, Trump 2.0 could differ. There is sense that the new administration is a more professional outfit than the first. We expect there to be a lower turnover of staff, even if the President continues to use social media to announce policy decisions. Policy could also be more thoughtful. Treasury Secretary, Scott Bessant, has spoken out against tariffs and is said to be a moderating influence on the President. He is also well respected in financial markets, so this could mean less unexpected economic policy, which could benefit global risk sentiment.

Watch out for a corporate tax rate

One of the key drivers of US stocks going forward will be Trump’s decision on the corporate tax rate. While one of his initial moves is expected to be an extension of 2017 tax cuts from the first Trump presidency, these will focus on income and individual taxes. Down the line, we expect Trump will cut the US corporate rate of tax, which could trigger a wave of US companies moving their headquarters back to home shores. Any news on a cut to US corporate tax could be welcomed by US stocks, and this may benefit both blue chip and mid cap stocks.

Crypto surges ahead of Trump

Elsewhere, the Trump fueled crypto boom continues. Bitcoin has reached a fresh record high on Monday above $109k, although it is currently trading below that level. The market expects a crypto-friendly administration. How this could manifest itself is to make states more crypto friendly, and to push pension funds and other institutional investors to buy it. There could also be a plan to create a crypto reserve, which could turbo charge the crypto space. However, any delay to this could trigger a steep sell off in crypto, which is famously volatile. This is worth remembering as Bitcoin reaches fresh record highs.

FTSE100 could gain from Trump

Some of the optimism in risk sentiment has seeped into other markets. For example, the Trump policies linked to deregulation in the energy sector and the financial sector, are all positive for the FTSE 100. The UK index has a large energy sector, and Trump’s preference for hydrocarbons could boost UK oil majors. Added to this, UK regulators appear to be taking the lead from the US and will delay the implementation of Basel 3 rules to extend bank capital ratios. This has boosted the financial sector in the UK, and Barclays’ stock price has reached its highest level since 2010, while Lloyds Banking Group has also recouped losses from last year. Added to this, Trump’s tariffs plans are expected to impact the UK lightly, especially compared to Europe and elsewhere, which may also boost the FTSE 100 in the medium term.