By Amanda Cooper
LONDON (Reuters) -Donald Trump's rapid confirmation as the next U.S. president unleashed the biggest one-day rally in the dollar in eight years and lifted stocks, as investors bet tariffs on imports and tax cuts could benefit U.S. business.
U.S. stock futures rallied by almost the most in a year, while the dollar was set for its largest one-day jump since 2016. Bitcoin hit record highs and Treasuries were battered.
Trump's pledges to raise tariffs, cut taxes and slash regulations encouraged investors to dive into a range of assets that looked likely to benefit from such policies.
Markets that could suffer under tougher tariffs, including those in some of the United States' major trading partners, bore the brunt of the sell-off, pushing the Mexican peso to its lowest in over two years, while the euro was set for its largest one-day drop since the Brexit vote in 2016.
Adding to the confidence in markets was Republicans winning control of the U.S. Senate, ensuring Trump's party will control at least one chamber of Congress next year, part of a potential so-called "Red sweep".
"It's extremely early days to be drawing conclusions about what a Trump presidency and potential clean sweep might mean for the U.S. and global economy and financial markets. Certainly, higher tariffs would involve greater inflation and less world trade growth," said Philip Shaw, chief economist at Investec (LON:INVP).
"With stocks, one of the primary drivers is Trump's promise to reduce corporate taxes for companies that make goods in America. And obviously, we’ve seen a big increase in U.S. stock futures and that’s carried through to European markets as well."
European stocks rallied, led by defence shares and banks, while renewable energy shares dropped.
The election could have far-reaching implications for tax and trade policy, as well as U.S. institutions. The outcome affects assets globally and could determine the outlook for U.S. debt, the longer-term strength of the dollar and a host of industries that make up the backbone of corporate America.
INTEREST RATES SEEN HIGHER
"The consequence is a higher path of rates," said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. He was buying bank shares in anticipation that higher yields and stronger growth would benefit their earnings.
Investors sold U.S. Treasuries, partly on the expectation that higher tariffs would inevitably filter through to consumer prices, but also because Trump's promises on spending risk worsening the government's finances.
" Next (LON:NXT) year will be a year in which there'll be a lot of discussion in terms of fiscal issues in the United States," Moelis (NYSE:MC) Vice Chairman and Managing Director Eric Cantor told a conference in Abu Dhabi on Wednesday as the election results were trickling in.
Meanwhile, shares in Trump Media and Technology Group surged in premarket trading, while those in Tesla (NASDAQ:TSLA), headed by Trump supporter Elon Musk, jumped nearly 13%.
Bitcoin surged to a record high, betting on a softer line on cryptocurrency regulation.
"With Trump's victory, you'll get much stronger fiscal policies compared to what might have been under a Democratic administration. This will have repercussions for inflation, and you can see that already with this morning's rise in Treasury yields," Andrea Scauri, a Swiss-based senior portfolio manager at Lemanik, said.
"So, who benefits from all of this? I think old-economy sectors, like oil, drilling, mechanical, and heavy industry, will benefit. And probably also tech, as the American consumers will have more money in their pockets, they might spend it on new phones, TVs, or invest in the stock market."
The results so far suggested markets had gained clarity faster than in 2020, when Joe Biden was announced the victor some four days after election night.
"That's what markets have been most worried about, that there would be a long, drawn-out fight over who won," said Jamie Cox, managing partner at Harris Financial Group.