US Election: President Trump, republican senate and republican house – TDS

Research Team at TDS, suggests that in a historic election, the US voted in Trump as President and the Republicans retained the Senate and House as the market reacted significantly in a risk-off fashion as the results came in through the night.

Key Quotes

“Given the policy uncertainty associated with this outcome and how little the market was pricing the scenario in, we think that the knee jerk reaction is reasonable.”

“The roadmap to the future will depend on Trump’s transition team. Over the next several weeks his team and priorities will become more clear. To the extent that the message is one of fiscal easing, deregulation and tax reform, risk assets should stabilize. We think the curve can steepen significantly as higher deficits should get priced in. However, to the extent that the focus is trade protectionism, tariffs, immigration, deportations and change in Fed leadership, we think that equities can sell-off more and the rise in rates can be capped. Volatility should remain high in the interim.”

“In the immediate aftermath of the election results, Trump’s acceptance speech was very conciliatory and is helping markets retrace. We would remain long USD versus risky assets, would not chase the MXN move here given large uncertainties, and have not yet seen EUR and JPY break out of recent ranges. The Fed for December is now priced 50/50, and will remain in flux and dependent on financial conditions.”

“Treasury rates initially declined significantly and the curve steepened, but by the time of writing, the 10y had erased all of the decline in yield. The rates market is pricing in more of a fiscal stimulus rather than a growth shock. But we should be sure not to extrapolate immediate reactions to long-term implications. Brexit voted in a policy with an uncertain trigger, while this US election has elected a person with an uncertain policy delivery. We have higher conviction on a steeper curve and a more inverted swap spread curve.”