Trump's Victory Sparks Market Surge as Dow Hits Record Highs | Daily Market Analysis

Key events:

• UK - BoE Interest Rate Decision (Nov)
• USA - Initial Jobless Claims
• USA - FOMC Statement
• USA - Fed Interest Rate Decision
• USA - FOMC Press Conference

On Wednesday, the Dow Jones Industrial Average reached new heights, posting its strongest gains since 2022 after Donald Trump’s election as the 47th President of the United States. His victory has invigorated optimism that pro-growth policies could further drive economic expansion, sparking a robust rally across major US stock indices.

The Dow soared by 1,508 points, or 3.6%, to close at a record 43,729.93. The S&P 500 rose 2.5%, while the NASDAQ Composite climbed 2.9%, with both indices reaching record closing highs.

The Associated Press and other major networks declared Trump the winner of the 2024 presidential election, signaling his return to the White House.

Alongside the presidential win, the Republicans secured a majority in the Senate and appeared on track to claim the House of Representatives. This potential "red sweep" could provide Trump with a clear path to implement his policies, some of which are anticipated to bolster economic growth further. Analysts speculate that his largely protectionist stance on trade and immigration may lead to inflationary pressures, sparking market activity. The likelihood of Trump’s economic agenda being easier to enact, paired with the Republicans’ control over both houses of Congress, has buoyed investor sentiment and boosted optimism for continued market strength.

The dollar surged to near a four-month high, reflecting confidence in the US economy's prospects under Trump's policies. Treasury yields also climbed, aligning with expectations that inflationary policies could lead to a more robust economy. A stronger dollar may continue exerting pressure on other currencies, such as the Australian Dollar, which, despite some initial gains, faces headwinds against the greenback.

The AUD had earlier seen a boost following the release of China’s trade balance data for October. China’s trade surplus expanded to $95.27 billion year-over-year, surpassing forecasts of $75.1 billion and previous figures of $81.71 billion. The country’s exports jumped by 12.7% annually, far above the anticipated 5.0% increase, suggesting resilient demand for Chinese goods despite global economic uncertainties. However, as Australia’s trade surplus narrowed to 4,609 million in September - its smallest since March - the AUD/USD pair may experience further downside if dollar strength persists.

The impact of a strengthened USD is also evident in the precious metals market, as gold prices extended their losses for a second straight session. The dollar-denominated metal is under pressure, with a stronger USD reducing its appeal as an alternative safe-haven asset. The improved market sentiment following Trump’s election has dampened demand for gold as a hedge, as investors pivot toward equities and the dollar amid expectations of a stable economic outlook.

Meanwhile, the euro faced losses of around 2% against the dollar in the previous session, and it continued trading near 1.0740. There are potential downside risks for the EUR/USD pair as well, especially if European growth stalls under the impact of US tariffs. Analysts suggest that if the European Central Bank sees this as a hindrance to growth, it could be forced to adopt more accommodative policies, possibly reducing rates to near-zero by 2025. Market watchers expect the ECB to lower the Deposit Facility Rate by 25 basis points in December to support a slowing European economy.

The Japanese Yen, which had hit multi-month lows against the dollar, made modest gains as Japanese authorities intervened verbally to stabilize the currency. Still, doubts linger regarding the Bank of Japan’s ability to hike rates further, limiting the yen’s safe-haven appeal. The broader risk-on sentiment, combined with market hopes of higher growth under Trump, suggests that the Federal Reserve may proceed more cautiously with rate cuts. Consequently, US Treasury bond yields have risen, supporting the dollar and maintaining downward pressure on the yen.

The Federal Reserve is set to announce its policy decision later on Thursday, with a 25-basis-point rate cut widely expected. Investors will closely monitor Fed Chair Jerome Powell’s comments for clues on future monetary policy, particularly as markets weigh the impact of inflationary fiscal policies on the rate outlook. A slower rate-cut trajectory could favor dollar bulls, maintaining upward pressure on the USD against lower-yielding currencies such as the JPY.

In Europe, economic data remains sparse this week, with only a few notable releases such as Pan-European retail sales data expected Thursday and an EU leaders’ summit concluding Friday. ECB President Christine Lagarde is scheduled to make a follow-up appearance on Saturday, where her comments on monetary policy will be scrutinized in light of recent global events.