• Donald Trump's projected win is expected to strengthen the U.S. dollar and stock market, but could weigh on bonds and emerging markets.
• His policies could lead to higher inflation and growth, necessitating high rates to prevent the economy from overheating.
• Trump's promise of less regulation and lower taxes for corporations could boost sectors like banks, technology, defense, and fossil fuels.
• However, his protectionist policies and tough stance on China could hurt multinational companies and increase U.S. government debt.

Donald Trump's projected win in the White House, according to Edison Research, marks a stunning political comeback. This victory is expected to have significant implications for global markets, with the U.S. dollar and stock market seen as winners. However, a Republican presidency could weigh on bonds, emerging markets, clean energy, and sustainable investing.

A Trump presidency is expected to strengthen the U.S. dollar, with investors anticipating his policies to lead to higher inflation and growth than would have been the case under Democrat Kamala Harris. This would necessitate the Federal Reserve to keep rates high to prevent the economy from overheating, which would be bullish for the dollar. Trump's plans to impose tariffs on trade, force European allies to pay more for defense, and his suspicion of multilateral institutions are likely to depress growth elsewhere in the world, boosting the dollar's allure.

Citi analysts expect the dollar to rally 3% after a Trump win. Analysts also predict a sharp fall in the euro, possibly below the key $1 level, if tariffs and domestic tax cuts follow. They also expect China's yuan to slide further, as it did in 2018-2020 when it depreciated swiftly. Higher dollar yields will also mean a return of carry-trades, with currencies such as the Japanese yen and Swiss franc already heavily sold in the run-up to the election.

Impact on Stocks and Bonds

Trump's promise of less regulation and lower taxes for big corporations, more oil production, and tough immigration policy point to stronger growth and inflation, viewed as positive for equities. Sectors such as banks, technology, defense, and fossil fuels are likely to benefit. His plan to cut the corporate tax rate to 15% from 21% would raise S&P 500 earnings by about 4%, Goldman Sachs estimates.

However, it is not yet clear how much of Trump's tax cut plan will make it through Congress. His protectionist policies and tough stance on China would raise costs, reduce profitability, and hurt multinational companies. Outside the United States, a strong dollar, rising U.S. rates, and trade tensions will mean defensive sectors will do better and multinational companies with exposure to U.S. markets will take a hit.

Investors have been growing increasingly alarmed about the scale of U.S. government debt and fiscal deficits adding to it, with worries that it will push up borrowing costs, or Treasury yields. Trump's spending plans could add $7.5 trillion to deficits over 10 years, according to one estimate, far greater than what Harris had proposed. Treasury yields rose almost 50 basis points in October, when markets were pricing in a higher likelihood of a Trump win.

Effects on Commodities and Emerging Markets

Trump will aim to maximize U.S. oil and gas drilling by expanding federal leasing and rolling back environmental regulation where possible - a policy agenda that all but guarantees the country will remain the world's top petroleum producer. That robust supply could help keep U.S. West Texas Intermediate crude futures, which dropped around 4% so far this year, relatively low.

On the other hand, he's likely to ramp up enforcement of oil sanctions on Iran, something that could trim a swath of world crude supply. He has also said he will fill up the Strategic Petroleum Reserve to levels never seen before, which could add support to prices as the government enters the markets.

Soybeans are also in the crosshairs. U.S. merchants had been racing to ship a record-large harvest ahead of the election amid fears of renewed trade tensions with China, the world's biggest soy importer. China, which failed to fully comply with a 2020 agreement with the Trump administration to buy more U.S. agricultural goods, has purchased fewer U.S. soybeans this marketing year and almost no corn. Soybean prices are down 25% compared to a year ago.