From Stocks to Debt, $2 Trillion Shock Rotation set off by Trump win

Over the past month, a $2 trillion shock wave through global markets has been experienced by Donald Trump’s election win.

That’s how much equities’ global market value has jumped. And over the worst month for global bonds in dollar terms on record, that’s about the size of the loss in worth of the Bloomberg Barclays Global Aggregate Index of bonds. As the yen plunged the most in 21 years against the dollar, other assets were roiled, too. A bevy of analysts and investors who had anticipated a Brexit-style rush for havens in the event of a surprise Republican presidential victory saw a complete reversal of the playbooks mapped out by them as a consequence.

When the yen and Treasuries advanced as the vote-count momentum favored Trump, those projections did pan out — for about eight hours. But then as investors decided that the likely new U.S. leader’s promises to cut taxes, boost spending and slash regulation would revive inflation and economic growth and Carl Icahn started snapping up S&P 500 futures, the great reflationary rotation trade started.

With plenty of potential roadblocks to Trump’s fiscal and regulatory proposals in a fractious U.S. Congress and with more than a month to go before Trump takes office, it is an open question how lasting a pattern the new market dynamics will be. But for now, to set the tone for the outlook as far as monetary policy goes, eyes turn toward next week’s Fed meeting.

“It’s astounding how big the move has been,” said James Audiss, Sydney-based senior wealth manager at Shaw and Partners Ltd., which oversees about $7.5 billion. “It’s been incredible. Now it all hinges on the Fed and the pace of those rate hikes, but for now the markets are happy to be risk-on.”

Three major U.S. stock indexes last month reached records on the same day for the first time in more than 20 years and the dollar has jumped to a decade high relative to major peers.

Led by Ghana and Mexico, several emerging markets submerged and most developed markets have surged as far as stocks are concerned. Though primarily due to OPEC’s pact driving up oil prices, Russia and Venezuela soared. More than two-thirds climbed in local currency terms, with a median gain of 2 percent of the 94 primary stock indexes tracked by Bloomberg.

A slightly cloudier picture looking at equity values can be seen by the greenback’s strength — and the U.S.’s size at $24.9 trillion out of a total $66.3 trillion.

While the 20 largest national debt markets all recorded losses — led by Japan and Mexico, each down more than 8 percent when it comes to bonds, and only Bahrain and Russia eked out gains in the Bloomberg Barclays global benchmark.

But how much more is there to come with so much change already priced in a month after Trump’s victory is the question investors now face.

“The night that they knocked it down a thousand points I went and bought stock that night, I thought that was crazy,” he said Wednesday in an interview with Scarlet Fu and Oliver Renick on “Bloomberg Markets.” “I’m not going to say run out and buy stocks today, because I think it’s run a little ahead of where it should be.”

(Adapted from Bloomberg)

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