Donald Trump’s victory in the recent US election may not have been a huge shock, but the speed with which it was resolved was surprising. Markets initially rallied following the announcement, with the S&P 500 reaching a record high and the DXY index ticking up. While some may interpret this as a positive sign for the economy, others believe it was more about the relief of a decisive outcome.

Looking ahead to Trump’s second presidency, there are mixed forecasts for economic growth. His support for tariffs, tax cuts, and immigration curbs could initially boost growth, but over the long term, these policies could weigh on potential growth. Deregulation may help reduce price pressures, but inflationary measures could offset any benefits. The Federal Reserve may need to stay in ‘tightening mode’ for longer, keeping interest rates above the neutral level.

There are also concerns about the Fed’s independence, as Trump could potentially install a candidate more aligned with his views on interest rates. This could lead to the adoption of yield curve control, which could impact Treasury yields and the overall economy. The uncertainty surrounding these decisions could create market volatility during Trump’s second term.

The impact of Trump’s victory extends beyond the US to other countries like the UK. The potential for tariffs on goods entering the US could affect global trade, with economies like Germany at greater risk due to their manufacturing sectors. However, the UK’s reliance on services may offer some protection against these tariffs. The impact on the UK economy will depend on factors like inflation, interest rates, and trade restrictions.

Overall, the global market response to Trump’s victory is uncertain, with different countries and industries facing varying levels of risk. US equities may be well insulated due to the country’s economic strength, while other markets could experience more volatility. The FTSE and gilt yields could be impacted by changes in US growth and policy decisions.

In conclusion, Trump’s second presidency brings both opportunities and challenges for the US and global economy. The key will be to closely monitor economic indicators and policy decisions to navigate the uncertainty ahead.