New Delhi [India], November 14 : The second term of Donald Trump, often referred to as "Trump 2.0," could bring heightened volatility to global stock and bond markets, highlighted a report by LLama Research.
The report highlighted that Trump's economic agenda, which is expected to include high public spending, tax cuts, and rising government deficits, could drive up bond yields and create turbulent conditions in financial markets.
It said "Trump 2.0 is likely to bring high public spending, tax cuts, and rising deficits, driving up bond yields and creating volatile conditions in both equity and bond markets".
The report also highlighted that Trump's spending focus on areas like defence, energy, and artificial intelligence, combined with substantial tax cuts, could provide a short-term boost to equities. However, investors are likely to face inflationary pressure in the bond market, where increased deficits could drive up yields.
These policies may spell the end of the dollar's dominance, as high debt levels and inflationary pressures could eventually weaken the currency. While the dollar may strengthen in the short term, the Federal Reserve's limited ability to respond, given high inflation and a slowing economy, may lead to a downturn over time.
Unlike Trump's 2016 term, which focused heavily on tariffs and trade deficits, particularly with China, his 2024 agenda is expected to shift toward managing currency dynamics. This shift reflects a more complex economic landscape as major global powers compete for influence and stability.
"In 2016, Trump's policies focused on tariffs and trade deficits, especially with China. In 2024, the focus shifts to currency dynamics, as global powers vie for influence and stability" the report added.
The report estimated that Trump's fiscal policies could increase the U.S. deficit by as much as USD 7.5 trillion, significantly raising government debt and creating potential risks for bond markets. This surge in U.S. bond yields could attract capital from Europe, putting pressure on central banks there to raise interest rates to support their currencies.
Rising U.S. yields could thus influence global markets, potentially triggering tighter monetary policies in other countries as they attempt to manage inflationary spillovers from the U.S. economy.
The report outlined that Trump's proposed economic policies could stimulate short-term gains in equities but also lead to inflation and high bond yields, which may challenge global markets.