Market reacts to potential Republican sweep: shifts in Treasury yields and bitcoin surge

Market reaction to potential Republican sweep

After stumbling on Monday following the release of weekend polls indicating a tight White House race, the market appears poised to invest in trades that could benefit from a Republican sweep.

Electoral college update

As the electoral college tally unfolds, Trump holds a significant lead over Harris. According to CNN, Trump has secured 211 votes, while Harris holds 153. The Associated Press reports Trump with 230 votes compared to Harris's 179.

With 270 votes needed for victory, key states like Wisconsin, Michigan, Pennsylvania, and Nevada remain too close to call.

Potential Republican policies

A Republican sweep could usher in notable policy changes, including Trump’s proposed 10% universal tariffs on most imports, affecting allies like the European Union (EU) and Japan. For Chinese imports, tariffs could escalate to 60% or more if he secures the presidency.

Fiscal expansion would likely follow a Republican sweep, with increased spending, lower taxes, and rising debt. Trump plans to make the 2017 personal tax cuts permanent and reduce the corporate tax rate to 15% for domestic manufacturers, which could further widen the deficit, currently at a significant 6% of gross domestic product (GDP).

Cryptocurrency and equities trends

The potential for a pro-crypto Republican administration has pushed bitcoin to a record high of $75,080, up 7.15%. Momentum suggests a run towards $80,000 could be within reach.

US equity futures are also trending up, with the S&P 500 gaining 1.20% to 5882, and the Nasdaq 100 adding 1.27% to 20,600.

Market movements

Markets are reacting in textbook fashion to these expectations.

• US 10-year Treasury yields have jumped 17 basis points (bp) to 4.44%, a four-month peak
• US dollar index (DXY) has surged 1.42% to 104.99, its highest level in four months
• USD/JPY has traded above 154.00 for the first time since July’s turbulence
• AUD/USD has fallen 1.8% to a three-month low of 0.6512, underlining its vulnerability to tariffs and the possibility of a trade war.

Provided the trend in voting observed during today’s Asian session continues in favour of Trump, we expect many of the moves highlighted above to extend into the sessions ahead. However, if the Democrats were to claw back lost ground, the US election could still bring a sting in the market’s tail.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 6 November 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}