Equities swing, bitcoin hits record as traders weigh Trump 2.0

NEW YORK

Asian equities fluctuated Thursday, while the dollar held gains and bitcoin hit a fresh record as markets attempted to ascertain the consequences of a second Donald Trump presidency after he pledged to cut taxes and ramp up tariffs with an eye on China.

The so-called Trump Trade went into overdrive on Wednesday as it emerged that the tycoon would return to the White House after defeating Democrat Kamala Harris, while his Republican Party gained control of the Senate and looked set to retain the House of Representatives.

The decisive win is expected to pave the way for a series of business-friendly measures such as tax cuts and deregulation, though analysts warn that such moves—along with the pledge to impose duties on imports—could reignite inflation.

The prospect of higher inflationary pressure could complicate matters for Federal Reserve Chair Jerome Powell as he tries to guide the economy to a soft landing while bringing prices under control.

The central bank is expected to announce a 25-basis-point interest rate reduction on Thursday, but there are now questions over the likelihood of another cut next month and the outlook for the new year.

"Those discussions might have to wait until a subsequent meeting and encompass four issues," said Tapas Strickland of the National Australia Bank.

"Does the election result lead to meaningful changes for economic demand or inflation that warrant a different policy path? Have jitters about job-market deterioration been overstated? Where is inflation headed? And what is the right level for rates, anyway?"

Still, economists at Citi wrote in a client note ahead of Election Day: "The December rate cut decision will depend on labor market data, and we expect further softening to lead to a 50-basis-point rate cut."

After a mixed day on Wednesday, Asian stock investors continued to tread carefully.

Tokyo edged down, along with Hong Kong, Sydney, Seoul, Wellington, and Manila, but Shanghai, Singapore, and Taipei rose.

This followed a blockbuster day on Wall Street, where all three main indexes hit new highs, led by a 3.6 percent spike in the Dow.

With Trump expected to once again set his sights on trade, observers said that will be a key issue for Asian governments, particularly China, after Washington and Beijing clashed on numerous occasions during his first term.

"The primary concern will be around tariffs and trade restrictions, which will have some impact but have been somewhat factored in," said Joshua Crabb and Colin Graham at asset manager Robeco.

"The offset to this will likely be a more aggressive policy response in Asia, both fiscally and monetarily."

"The first indication of this will be stimulus in China, with the National People's Congress scheduled to finalize on Nov. 8."

Traders are awaiting the conclusion on Friday of a Chinese government meeting to hammer out stimulus for the world's number two economy, with expectations for hundreds of billions of dollars aimed at helping local authorities and supporting banks to boost lending.

On currency markets, the dollar held its gains against its peers after surging on the back of Trump's victory as rate cut bets are pared back and Treasury yields rise.

Bitcoin touched a new high of just above $77,475 on optimism about the outlook for cryptocurrencies after the president-elect stated on the campaign trail that he would make the United States the "bitcoin and cryptocurrency capital of the world."