Macro Intelligence: Trump Trade

Article written by Juliette Saly (ausbiz)

Trump trade

In this week’s edition of IG Macro Intelligence, we take a look at the outcome of the US election, and what it means for the Australian economy and market.

Banking stocks versus S&P 500

Following the election victory of Republican candidate Donald Trump, US stocks soared to new record levels. The S&P 500 made history by closing above 6000 points, bolstered by an equity rally and supported by lower Treasury yields after the Federal Reserve (Fed) cut interest rates by 25 basis points (bp) as expected.

Analysts on Wall Street express optimism about the US banking sector's future under Trump's administration. Republican regulators are expected to ease capital and merger approval processes, creating a more favourable environment for financial institutions.

This positive sentiment was reflected across the market as regional, mid-cap, and large-cap banking stocks experienced significant gains following Trump's election win.

S&P 500 daily chart

Banking sector divergence in 2024

Shares in Trump supporter Elon Musk’s Tesla also surged, reaching $1 trillion in market value for the first time since 2022. The small-cap Russell 2000 index jumped 1.5% to its highest level since 2021 and was near a record high. Trump’s protectionist policies are seen as positive for small businesses in America.

What Trump's win means for crypto

Simultaneously, the US dollar experienced a significant rise following the election results, while bitcoin hit an unprecedented high of over $87,000 per coin, making strides toward the $90,000 mark. A Republican win is seen as beneficial for the cryptocurrency sector, particularly with Trump's campaign pledge to remove Gary Gensler, the head of the US Securities and Exchange Commission, on his first day in office.

With this political landscape, many bullish crypto traders foresee bitcoin reaching $100,000 by the time Trump re-enters the White House in January 2025. Egor Sidelska from Magnet Capital expressed his optimism during an appearance on ausbiz, stating that "the limit is the moon for cryptocurrencies if a Trump presidency regulates the sector."

Bitcoin daily chart

Tariff threats stir trade war fears... again

In recent developments, Trump has reignited concerns over a potential trade war by threatening to impose new tariffs on Chinese imports. This move is expected to prompt reciprocal actions from China, heightening fears of renewed economic hostilities between the two nations.

Campaign promises set the stage

During his election campaign, Trump committed to imposing a substantial 60% tariff on Chinese goods, alongside a 10% levy on all other imports, should he assume a second term in office. These aggressive tariff measures were central to his "America First" agenda, aimed at protecting domestic industries.

Paul Donovan, Chief Economist at UBS Global Wealth Management, discussed this scenario on ausbiz, stating, "Their base case is there will be a resurgence in US-China trade tensions." Donovan's analysis underscores the potential for escalating economic friction as both countries prepare to defend their trade interests.

However, not all experts share this gloomy outlook.

Craig Emerson, a former Australian Trade Minister and the current managing director of Emerson Economics, offered a more optimistic perspective. He advised against assuming the worst, arguing that fears of a full-scale trade war might be overstated. Emerson suggests that while tensions are likely, both nations have reasons to avoid excessive conflict due to the broader economic repercussions involved.

The winners and losers

Macquarie’s top picks

Macquarie analysts called a full Republican sweep the best outcome for Aussie stocks and favour the following picks:

• Block (ASX: SQ2)
• James Hardie (ASX: JHX)
• Light and Wonder (ASX: LNW)
• Aristocrat (ASX: ALL)

Market consolidation after peak

Outperform ratings amid Trump trade benefits

Macquarie Analyst Peter Steyn emphasises that James Hardie is positioned advantageously with "little to no tariff-related risks," poised to benefit from Trump's proposed taxation policies and housing-focused strategies. With an average target price of $53, James Hardie carries a 'Hold' rating from brokers surveyed by Refinitiv, indicating a potential 9% upside from its current price level.

Meanwhile, Macquarie has an 'outperform' on several other stocks it sees as beneficiaries from Trump's trade policies, including:

• Reliance Worldwide (ASX: RWC)
• Pro Medicus (ASX: PME)
• Computershare (ASX: CPU)

Each of these companies derives more than 50% of its revenue from the US market.

Breville's mixed outlook

Breville Group (ASX: BRG) carries an average target price of $30.72, with Refinitiv suggesting a 'Hold' recommendation. Ord Minnett advises 'Accumulate', pointing to potential sales growth in the US due to anticipated tariff impacts, setting a target price of $33. Morgan Stanley, however, sees tariff-related earnings risks as short-lived and maintains an 'Overweight' rating on Breville with a $35 target price.

Breville Group daily chart

Buy/sell signals point to controlled market growth

Cautious optimism in real estate

The average target price for Goodman Group (ASX:GMG) is $37.31 with a 'Buy' recommendation. AMP Chief Economist Shane Oliver advises caution regarding portfolio adjustments based on election outcomes. He emphasises the importance of maintaining diversified investments across asset classes and geographical locations while focusing on long-term financial goals.

UBS warns of potential inflationary pressures from a second Trump administration, which could lead to prolonged high-interest rates. In such a scenario, they favour Goodman Group among REITs.

UBS Research Analyst Tom Bodor mentioned their recent upgrade of GMG to a neutral stance following the election, underscoring the importance of considering broader market influences beyond the Presidential election alone.

Goodman Group daily chart

Strength indicators show sustained upward momentum