What impact will Trump's return to power have on market? Arnab Das answers

"I think it is also possible that we would see higher greater immigration curbs and maybe some meaningful reversals of immigration that has already taken place. So, these policies would be probably growth friendly but also somewhat inflation oriented or reflation oriented overall and that might imply that the Fed eases more slowly or indeed even less than otherwise," says Arnab Das, Global Macro Strategist, Invesco EMEA.

As Mr Dennis rightly pointed out that this might increase if the chances of Trump coming back to power and that is a big positive for the markets, but if you look at his potential return to the Oval Office presents a rather a bit of a paradox for the equities. Now on one hand Trump's policies could continue to support the large fiscal deficits, on the other hand these deficits could exacerbate the already higher challenges for the higher inflation and rising US yields. Now, also if he comes back to power and he continues with higher tariffs for China that could lead to a potential trade war also happening. So, in the long term if he has to come back to office, how will this impact the markets?
Arnab Das: So, first I think I sort of broadly agree with Geoff that what is going on, what is being priced in is at least initially somewhat higher chance that Trump will win and I think that is consistent with what you are saying right, it would be consistent with expectations that the tax cuts might be renewed, there might be more of a larger fiscal deficit than otherwise, there might be higher tariffs.

I think it is also possible that we would see higher greater immigration curbs and maybe some meaningful reversals of immigration that has already taken place. So, these policies would be probably growth friendly but also somewhat inflation oriented or reflation oriented overall and that might imply that the Fed eases more slowly or indeed even less than otherwise.


It seems like the US economy is cooling down now and inflation is cooling down, the jobs market is cooling down, so we are headed towards the first of possibly a few or more Fed rate cuts.

And my sense is that it probably would not make too much difference for 2024, but in 2025 and 2026 if Trump is re-elected of course that is when he would be implementing policies subject to whatever kind of congress we get and I think that is kind of what is being priced in, a higher likelihood of those kinds of policies and hence a somewhat steeper yield curve or somewhat stronger US dollar and a somewhat stronger America kind of stock market.

I think China as you say would be in the kind of sites of the Trump administration but not just China, Europe as well and a number of countries and regions that have surpluses with the US. So, I am not sure that we would see a huge increase in trade war, at least not on day one. I think we would see a lot of bargaining and a lot of pressure and that would initially imply a stronger dollar.

People close to Trump and to some degree Trump himself have sort of suggested that they would prefer a weaker dollar, I am not sure how they would engineer that, but a lot of challenges and a lot of interesting let us say macro and financial fallout if that were to come to pass.

I think it is also worth saying that this takes the focus of the media and maybe to some extent the public away from the viability of the Biden campaign, but yes, I think there is a decent chance that the struggle within the Democratic Party about what to do about the perception that Biden is not all there and is in a bit of cognitive decline that struggle will probably continue and we may see some results of that in the coming days or weeks, it is not a given at all but it is something to still bear in mind.


This week brings earnings report from companies like Bank of America, BlackRock, Netflix aside from the companies, the main point of interest will be the retail sales that is likely to come out on Tuesday night and a speech from the Fed chair Powell early on Wednesday morning, what are you expecting from those numbers and of course from the speech.
Arnab Das: Well, we do not make point forecasts of all these numbers and certainly do not prognosticate precisely what is going to be said. But I think the economy is slowing as we are saying so that should take some of the steam out of retail sales and I think it seems likely that Chair Powell will continue the kind of alignment of stars for September as Geoff said, September and probably December as well as is largely priced in rather than July.
I think they will probably need to see a bit more data. They probably want to have kind of one of the quarterly processes of forecasts and the summary of economic projections and so they will point in that direction and guide the market or keep the guidance around the market where it roughly is without doing too much forward guidance and without doing too much of a kind of being too definitive about it but still pointing us in the direction that the market is already latched on to.

I think the earnings reports will continue to be fairly strong, corporate America I think by and large, not all of it but much of it is in very good shape. The economy although it is slowing and although the labour market is softening, it still remains in relatively good shape and that is why we are talking about a series of gradual cuts that may have a limit here rather than kind of the almost traditional thing that has happened in the past when the Fed tightens something has broken, it is usually the financial sector, something in the financial system goes wrong, we have had a little bit of that but it has not been systemic, it has been quite idiosyncratic and it therefore has not been recessionary, has not caused the labour market to crack.

So, what we are seeing I think is a rebalancing of the labour market where it is sort of normalising going back to kind of maybe the pre-pandemic sort of dispensation, where labour market was fairly tight but not aggressively tight as it had been in the aftermath of the reopening and the massive amount of fiscal support that was there which is what as Geoff was saying right that there do not seem to be any fiscal hawks left in the US.

I think there are under the surface, they are not taking flight because this is not the moment to do so, but I think we are in a situation where the economy is clearly responding to the rate hikes that have taken place not by falling off a cliff but by slowing appreciably and I think that is what we will continue to see in indicators like you say like retail sales and in due course earnings reports as well.