Investing.com -- President-elect Donald Trump is unlikely to provide detailed clues on his policy agenda at his inauguration on Monday, but Macquarie outlines three topics that could potentially be discussed during Trump's speech that would likely be market moving.
"Attention will turn to the inauguration on Monday, which coincides with a Federal holiday — Martin Luther King Jr. Day. We can't help but think that some topics that Trump will touch upon on Monday — and what Trump says (or doesn't say about them) could be market-moving," Macquarie analysts said in a note.
While Trump isn't expected to provide detailed information on policy as that might risk "restricting Trump's room for negotiations with Congress and foreign counterparts later," they added. Still, testimonies of cabinet-designees Scott Bessent and Marco Rubio offer a rough guide, the analysts said, flagging three topics that could come up during the speech including deficits and defense, immigration, and energy.
1. Deficits and Defense
Trump may discuss increased defense spending, potentially calling for NATO allies to spend 4-5% of GDP on defense, up from NATO's current 2% guideline. Without new sources of revenue, higher defense spending imply higher deficits in the U.S. and abroad, potentially pushing Treasury and global sovereign yields higher, the analysts said.
If Trump, however, makes credible promises about cutting the U.S. deficit to 3% of GDP, as suggested by Treasury Secretary-designate Scott Bessent, it could offset these concerns. Trump may emphasize "pro-growth" policies and the use of AI to reduce government expenditures as ways to address the deficit.
2. Immigration
Trump's immigration agenda, including plans to "seal the southern border" and implement "the largest deportation program in American history," could spark renewed inflation worries, Macquarie warns. Trump has previously threatened to reinstate a travel ban and end birthright citizenship. The analysts warn that "this kind of rhetoric and promises of associated executive orders on Inauguration Day could also push yields higher."
3. Energy and Russia-Ukraine
Trump's approach to the Russia-Ukraine conflict could impact both currency and commodity markets. If Trump reiterates a "concession and compromise" approach, as hinted by Secretary of State-designate Marco Rubio, it could give the EUR/USD a boost.
“It is important for everyone to be realistic," Rubio told the the Foreign Relations Committee on Jan.15. "There will have to be concessions made by the Russian Federation, but also by the Ukrainians."
If Trump, however, stresses the need for more sanctions on Russia, then oil prices could likely climb higher. On the domestic energy policy, should Trump promise to increase domestic fossil fuel production and roll back clean energy initiatives this could have mixed effects on oil prices, depending on the relative elasticity of demand and supply, Macquarie said.
The topics that Trump chooses to highlight and the tone he adopts could significantly influence market sentiment, the analysts suggested.
"[T]he topics that are touched upon, and the tone used, could signal near-term priorities, which could be pounced on by traders to inform market direction," they added.