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Trump wins: market reacts to red sweep
he U.S. Dollar strengthened significantly, rising about 1.5% as investors adjusted their positions in response to the election outcome
Gold prices declined sharply to around $2,700
Silver saw a slight drop to $32.28 per ounce
ECB’s anticipated easing prompted a rally in the euro
Election and Market Sentiment
The Associated Press, along with CBS, Fox, and CNN, has declared the election for Trump, reporting a clean sweep across all swing states. This projection gives Trump 312 electoral votes to Harris' 226, which has generated a noticeable market response favoring this "Red Sweep."
U.S. Treasury and Dollar Movements
The market reaction has led to a significant shift in U.S. Treasury yields. The 10-year Treasury yield climbed approximately 15 basis points, with the 5s30s curve showing bear steepening. Meanwhile, the market pricing for the Fed’s terminal rate increased by around 10 basis points, bringing expectations to 3.73% by the end of 2025. This reflects around 100 basis points of anticipated easing this week.
The U.S. Dollar saw a substantial rise, trading approximately 1.5% higher.
European Bonds and Currency
In Europe, the euro front end rallied with strong bull steepening, as markets expect the European Central Bank to continue easing. The 10-year German Bund is aligning with the movements in U.S. Treasuries, while the divergence appears more pronounced at the short end.
Commodities
Gold faced considerable selling pressure, dropping to the $2,700 range—a three-week low—as the European session began. The U.S. Dollar rally, fueled by Trump’s projected victory, added to the bearish sentiment surrounding gold. Concerns over deficit spending and anticipation of a restrained easing approach by the Fed pushed U.S. Treasury yields higher. The rally in U.S. equity futures has further contributed to this risk-on sentiment, suggesting a continued downward trend for gold.
Silver prices declined on Wednesday, falling to $32.28 per troy ounce, a 1.12% decrease from $32.64 on Tuesday. However, year-to-date, silver prices have still climbed by 35.64%. The Gold/Silver ratio also rose, moving to 84.33 from 84.04.
Focus on the Fed
Market attention is shifting towards the upcoming Federal Reserve meeting. U.S. Treasury yields remained firm amid expectations of a second consecutive rate cut, following last month's 50-basis-point reduction. Fed officials expressed confidence in the inflation trend moving towards the 2% target, while acknowledging the potential upside risks in the labor market.
