A look at the day ahead in U.S. and global markets from Mike

Dolan

Donald Trump's surprisingly comprehensive victory in the

U.S. Presidential election has electrified the U.S. dollar -

possibly to his own chagrin - and the U.S. currency is

eyeing its biggest one-day gain in two years.

Even before official results were in, Trump's virtually

assured win across key swing states and in the popular vote

nationwide looks far more resounding than the tight race

predicted by opinion polls and betting markets only yesterday.

His Republican party also took the Senate as expected, but a

clean sweep of Congress was still in the mix as the House

remains too close to call and may return to Democrats.

Both stock futures and Treasury yields

jumped immediately on unfolding result, the seeming

clarity of which was a relief to some who feared days or even

weeks of political and legal wrangling over contested votes.

Small cap stocks captured by the Russell 2000 have so

far proven the biggest equity index winners - soaring almost 6%

ahead of Wednesday's bell.

S&P500 and tech-led Nasdaq futures were both

up more almost 2% and, significantly, the clear result saw the

the VIX 'fear index' of equity volatility plunged to its lowest

in more than month - back below historical averages.

Wary of another fiscal stimulus via Trump's promised tax

cuts on top of an already 6%-of-GDP budget deficit, Treasury

were whacked - with the benchmark 10-year yield hitting its

highest since July just shy of 4.5%.

However, the still-live chance of Democrat-dominated House

and resulting gridlock plus the likelihood on Thursday of a

second Federal Reserve interest rate cut of the year, limited

Treasury losses for now.

The fate of the House may now dictate the extent of further

bond market losses from here - with the lingering chance 'Red

sweep' underscoring tax cut speculation.

Ebbing U.S. crude prices, in part due to Trump's

enthusiasm for drilling more oil but also on rising domestic

inventories and the higher dollar, also cosseted bruised bonds

to some degree.

Other so-called Trump trades reacted as expected, with

Bitcoin gaining as much as 8% to new record highs as the

results emerged and digital currency punters cheered a likely

soft touch on crypto market regulation from the next president.

Shares in Trump Media & Technology ( DJT ) were up more than

50%. And Tesla stock jumped 12%, with its Trump-backing

billionaire boss Elon Musk recently promised a role leading a

government efficiency commission by the likely new president.

But the dollar's surge worldwide stood out - its index gains

of almost 1.5% at one point captured gains against the euro

and Japan's yen to four-month highs while it hit

2-year highs on Mexico's peso and notched its best levels

on China's yuan since early August.

Regardless of the House outcome, Trump's independent control

of trade policy and pledge to ratchet up tariffs against China

and the rest of the globe is seen as a dollar positive by

crimping the trade deficit and lifting domestic consumer prices.

And Tuesday data showed that overseas trade gap increased

19% in September to $84.4 billion, the highest level since April

2022, as imports jumped 3% to a record $352.3 billion.

But with Trump inheriting a robust economy, stocks marching

higher and Treasury yields climbing on his loose fiscal steer,

dollar gains were bolstered - even if Trump and his advisers

typically advocate a softer exchange rate to flatter trade

competitiveness.

Shorter-term, the latest U.S. service sector surveys for

last month showed brisk pre-election activity even with

contained price readings and S&P500 firms' profit growth is well

ahead of forecast for the third quarter.

And while futures markets remain confident of a quarter

point Fed rate cut on Thursday, pricing now shows just 90 basis

points of cuts over the year after that. That would put an

implied 'terminal rate' for the Fed cycle as high as 3.75% -

almost a full percentage point above what Fed policymakers

themselves had indicated when they first cut rates in September.

Aside from currencies, overseas stock markets were mostly

positive as the U.S. election results unfolded.

Mainland Chinese and Hong Kong stocks,

awaiting key Chinese government policy indications this week

too, were the main under-performers and lost 0.5% and 2.6%

respectively on trade tariff concerns. South Korea's Kospi index

also lost 0.5%.

But aided by a weaker yen, Japan's Nikkei surged

2.6% and both euro stocks and Britain's gained

more than 1% each.

Perhaps most notable was a slide in euro zone government

bond yields in stark contrast to the spike in U.S.

Treasury equivalents - in part as the darker world trade outlook

and differing fiscal projections either side of the Atlantic

widened economic gaps and yield spreads across the ocean.

A wobbling German coalition government is also adding to

trepidation in the euro zone amid some speculation about a snap

election there.

Key developments that should provide more direction to U.S.

markets later on Wednesday:

* Results of U.S. Presidential and Congressional Elections

* U.S. Federal Reserve's Federal Open Market Committee starts

two-day policy meeting

* US Treasury auctions $25 billion of 30-year bonds

* US corporate earnings: Qualcomm, Gilead, Ameren, Mckesson,

Albemarle, Sempra, Corteva, Atmos, CVS, Howmet, STERIS, ANSYS,

Take Two, Host Hotels, Match, Williams, PTC, APA, Iron Mountain,

Marketaxess, Cencora, Trimble, American Electric Power, Pinnacle

West, Charles River, Johnson Controls etc

* European Central Bank President Christine Lagarde and ECB Vice

President Luis de Guindos speak

(By Mike Dolan,

[email protected])