Trump’s resurrection comes with economic caveats

One positive outcome of Donald Trump’s emphatic win in last week’s US presidential election meant that America was spared the turbulent aftermath that would probably have occurred had he lost.
Equally, equity investors also benefited nicely from the so-called “Trump bump” as markets surged in response to Trump’s decisive win. Bitcoin investors in particular revelled in a re-elected president who has become an ardent convert and a true believer in the future of crypto, which saw the price of Bitcoin surge 11 percent to a new all-time high of US$77,270 last week.
Locally, freight and logistics provider Mainfreight – which will announce its half year result this week – is already seeing a bump of its own as importers in the US scramble to secure shipping and warehouse space as they ‘pre-load’ freight orders in advance of the likely introduction of multiple new tariffs by the incoming administration.
Mainfreight managing director Don Braid said enquiries to its US offices had “increased dramatically” since the election result had been confirmed.
“There has been a noticeable spike in enquiries from customers in recent day seeking to pre-load inbound freight volumes in the next two to three months. However, we’re being careful not to get caught up in the potential overflow as we seek to gain an ongoing commitment in regard to future business.”
Braid also pointed out that if the US economy were to get a new ‘shot-in-the arm’, particularly its manufacturing sector, then Mainfreight would obviously benefit from that.
Peter Sand, chief analyst at Xeneta, one of the world’s leading freight analysts, told the Financial Times on Friday that he expected shipping rates to soar as companies rush to send goods to the US ahead of the president-elect’s inauguration on January 20.
“The knee-jerk reaction from US shippers will be to front-load imports before Trump is able to impose his new tariffs,” Sand said. “If you have warehouse space and the goods to ship, front-loading imports is the simplest way to manage this risk in the short term — but it will bring its own problems.”
Braid however is more cautious, saying “there are a few adjectives in that comment that we wouldn’t agree with”, and pointing out the lead times and space availability involved in international freight movements comes with its own particular set of challenges.
One of the more surprising aspects of Trump’s victory is the degree to which American voters going to the election were so downbeat about the state of their economy, despite all the indicators to the contrary, particularly historically low unemployment levels.
A recent poll by YouGov found that 39 percent of respondents incorrectly believed the US was in recession (just 36 percent said it was not) which no doubt came as a result of Trump’s repeated messaging variously describing the economy as “terrible, in serious trouble, and in the worst shape ever.”
Yet, this wasn’t the view of most economists.
“In the 35 years I’ve been an economist, I’ve rarely seen an economy performing as well as it is,” Mark Zandi, chief economist of Moody’s Analytics, said recently. “In fact, I’d give it an A+.”
But the US public, still upset about the surge in inflation several years ago, weren’t buying it and saw things very differently based on their own experience.
And now everyone has to wait and see what Trump will actually deliver.As electors know only too well, what candidates say on the campaign trail and what they end up implementing can often be two very different things.
However, given Trump will effectively have free rein with majorities in the Senate and most likely in the US House of Representatives, as well as a clear majority of previous appointees in the Supreme Court, his political and economic agenda has every likelihood of being even more radical, and potentially volatile for markets, than his previous term in office.
Plus, his previous experience as president will no doubt bring with it a much higher degree of confidence and determination to execute on his planned agenda this time round after being stymied previously by multiple firings and fallouts with various appointees.
When it comes to trade, Trump’s plans to ramp up a controversial and radical new tariff regime on imports will effectively turn the clock back almost 100 years to a time when US Republicans Reed Smoot and Willis Hawley co-sponsored legislation in 1930 to dramatically increase tariffs on over 20,000 agricultural and industrial imports.
In response, and demonstrating their profession’s commitment to free trade, more than 1000 economists at the time wrote an open letter to then-US President Herbert Hoover asking him to veto the Smoot-Hawley Act. However, demonstrating the tendency of politicians to ignore economists, a stance likely to be followed by the newly re-elected president, Hoover went ahead and signed the bill into law anyway.
Unsurprisingly, the increase in tariffs hurt US firms by raising the prices of many of their input costs and led of course to other countries engaging in a tit-for-tat response and imposing fresh tariffs of their own.
As a primary produce exporter, there is obviously growing concern here about the impact tariffs would have on our own economy.
Industry body Beef & Lamb NZ has already expressed alarm at the prospect of tariffs of up to 20 percent being imposed on local exporters given the significance of the US market, while NZ Winegrowers chief executive Philip Gregan told RNZ on Friday there was also “nervousness” in the wine industry about the “hypothetical” hit to business that may result from what is a key market for the sector.
For now, exporters will just have to wait and see how things unfold, but it’s fair to say that the next four years of a Trump presidency is likely to be just as much of a rollercoaster – if not more so – than the last one.
If ever there was a US president more disposed and friendly towards financial markets. it would have to be Donald Trump.
In fact, unlike outgoing president Joe Biden, the newly re-elected president previously used the performance of the S&P500 as one of his most important performance benchmarks.
Trump will clearly be delighted with the market’s ‘welcome back’ response to his win after the S&P500 recorded its best week of the year, gaining 4.7 percent and briefly pushing above the 6,000 level to reach a new all-time high: its 50th this year.
In fact, from the low in late October last year the index has now gained an astonishing 45 percent, due in large part to the explosive performance of tech stocks such as Nvidia which is up more than 200 percent year-to-date.
Adding to the bullish sentiment, a whopping US$20 billion flowed into US equity funds on the day Trump claimed victory, the most in five months.
Small caps – which are seen benefiting from Trump’s tariff threats – attracted the biggest inflow since March, though economists fear that tariffs, if enacted, could boomerang on the US economy to the tune of hundreds of billions of dollars.
If all of this sounds like what is sometimes referred to as a ‘blowoff top’ when markets become euphoric and eventually peak, Pie Funds founder and chief investment officer Mike Taylor thinks that’s likely to still be some way off.
“I expect this market will follow the usual path and continue to push higher, absent some unexpected black swan event of course. Born out of pessimism in 2022 that inflation was here to stay and interest rates were going to 10 percent there is now growing optimism that the inflation genie is back in the bottle and the US has plenty more strong growth still to come.
“But eventually it will die on euphoria at some point, perhaps when Trump wins his Nobel Peace prize and Musk launches his autonomous vehicles! But we’re not at that point yet.”
Taylor also points out that the market’s jubilant reaction to Trump’s victory highlights the true extent of the uncertainty that existed in the runup to the election.
“It’s fair to say everyone was positioned quite cautiously going into the election, hence why indicators such as the volatility index (VIX) was at 22 but has since fallen back to 14. Names like Tesla were actually under-owned going into election day, so there was a catch-up rally that occurred when Trump came through victorious.
“As we know, Tesla is a retail/meme crowd favourite, so always had the potential to go ballistic, given the strong link between Musk and Trump. However, what really stood out for me is the stark divergence between Europe and the US right now.
“The S&P gained almost 5 percent last week while Europe’s main index the ESTOXX fell 1 percent creating a 6 percent delta which is obviously concerning. Overall, even though the bond market was ahead of this, US Treasuries had moved aggressively pre-election. Equities, as usual, were slow to catch on.”
Locally, the NZX50 delivered a more muted response to the outcome of the US election, though Friday’s advance lifted the week’s gain to 1.7 percent ahead of earnings season beginning this week for listed companies with March / September balance dates. Reporting their interim or full year results in the coming weeks include: F&P Healthcare, Infratil, Contact Energy, Sky Television and Ryman Healthcare.
Delivering the US Federal Reserve’s latest monetary policy statement in the immediate aftermath of the presidential election, chair Jay Powell confirmed the central bank would cut its benchmark interest rate by a quarter point while also hailing the strength of the US economy.
Curtly batting away any suggestion that he would resign if called on to do so by the newly re-elected president given their previous strained relationship, Powell reiterated that his term chairing the Federal Reserve is not due to end until May 2026 and he had no plans to leave before then.
The unanimous decision, two days after an election result that created fresh uncertainty about the outlook for the world’s largest economy, saw the Fed’s target range lowered to 4.5 percent to 4.75 per cent. That marked a decline in the pace from September’s half-point cut, which rate-setters made in response to previous weakness in the jobs market.
Stock markets have soared on expectations of bigger corporate profits, yet economists say the president-elect’s plans risk not only higher inflation, but also slower growth. Powell refused to be drawn on how the central bank would respond to the next administration, saying it was too early to judge what the substance of a Trump administration’s economic policies would be.
“We don’t guess, we don’t speculate and we don’t assume,” Powell said at his post-meeting media conference.
While the Fed is an independent institution, the president-elect previously lambasted rate-setters for not cutting borrowing costs swiftly enough during his first term and now there is the prospect of further tension if the central bank doesn’t play ball once again.
Trump’s plans to roll over his earlier tax cuts have also raised concerns over the ballooning size of the US deficit. Powell said the Fed would take “material” and “persistent” changes in the US government’s borrowing costs “into account”.
Fed officials have been debating how quickly to lower interest rates to a “neutral” setting that neither boosts nor suppresses demand, while keeping inflation steady at the central bank’s 2 percent goal. Powell stressed the economic health of the US meant the right way for rate-setters to get to neutral was “carefully” and “patiently”.
Monday• Survey of Expectations (M14) – RBNZ
Tuesday• Electronic Card Transactions (Oct) – Stats NZ• Ready Mixed Concrete (Sept Qtr) – Stats NZ• ANZ Truckometer (Oct)
Wednesday• Contact Energy AGM• Mainfreight – Half year result• Goodman Property Trust – Half year result• Residential Mortgage Lending by debt-to-income (Sept) – RBNZ• International Migration & Travel (Sept) – Stats NZ
Thursday• Fonterra Co-operative Group AGM• Infratil – Half year result• Sky Television AGM• Selected Price Indexes (Oct) – Stats NZ
Friday• BNZ-BusinessNZ Performance of Manufacturing Index (Oct)• Precinct Property AGM• Chatham Rock AGM• National Accounts (Income & Expenditure) for Year Ending 31 March ‘24