Trump's first month in office: How has it affected financial markets?!
It's been a month since Donald Trump was inaugurated into the White House. The returning US president has been moving swiftly on his promised policies, including sweeping tariffs, federal job cuts, the start of peace talks in the war in Ukraine, and more. While the outcomes of these events remain unclear, several notable trends in financial markets have reflected how investors have responded to his policy stances.
A falling US dollar
The US dollar rose from Trump's election victory on November 5 last year to its peak in early January. However, it has reversed its upward trend since Trump's inauguration on January 20, with the dollar index (DXY) falling 2.2%, from above 109 to 107 since the market close on February 19. Several factors have contributed to the greenback's weakness.
First, markets had already appreciated to a strong dollar before his inauguration, and profit-taking may have caused the pullback. Second, he delayed tariffs on Mexico and Canada, as well as reciprocal tariffs on global trading partners.
Although he also announced 25% tariffs on steel and aluminum, possibly extending to automakers, computer chips and pharmaceuticals, those import duties won’t take effect until April. So far, the only tariff actually implemented has been a 10% surcharge on China, which prompted immediate countermeasures.
As a result, fears of an imminent resurgence of inflation have faded, leading to a reversal in the dollar’s trend. Meanwhile, U.S. government bond yields have also fallen since his inauguration for the same reason. Another key factor is that the Federal Reserve signaled that it may need to slow its runoffs of the balance sheet between the debt ceiling limits. This suggests that the central bank is likely to keep government debt levels high, putting pressure on borrowing costs and, in turn, weakening the dollar.
Record-breaking stock markets
Global stock markets have been on an uptrend since Trump’s inauguration, especially European stocks. The delay in imposing sweeping tariffs may have been a key factor supporting risk sentiment. However, the fundamentals driving this rally include expectations of lower global interest rates, the ongoing AI frenzy and positive corporate earnings. Meanwhile, Trump-initiated peace talks with Russia have boosted European defense stocks.
In fact, the rise in European stocks has been broad-based, with all sectors gaining over the past month. Markets expect the European Central Bank to continue cutting interest rates and potentially introduce additional special funds for defense spending.
Trump's policies have also indirectly supported European sectors such as finance, technology and industrials, leading to broad gains. His announcement to invest $500 billion (€479 billion) in US artificial intelligence infrastructure, his promise to deregulate the banking sector and his call for the EU to increase defence spending have all contributed to the outperformance of these sectors.
All-time high for gold
Gold has been a standout asset over the past month, with gold futures prices up 8% since Trump's inauguration. Demand for safe-haven assets has risen on concerns about a potential global trade war and slowing economic growth. A weaker U.S. dollar has also added to gold's upward momentum. In addition, the Trump administration, with the help of Elon Musk, has cut thousands of federal workers, which could lead to higher unemployment and weaker consumer spending.
“This has been the most disruptive to markets so far and poses significant risks to inflation and, in the long term, growth,” said Kyle Rodd, senior market analyst at Capital.com. “Another key question is how DOGE’s slash-and-burn approach impacts employment and spending.”
Falling oil prices
Crude oil prices have been under pressure since Trump took office last month, with Brent futures down 6.6% and WTI futures down 7.8%. This is in line with Trump's aim to lower global crude prices as he urged oil producers to increase output with the slogan "Drill, baby, drill".
His peace talks with Russia could also include easing sanctions on the country's oil exports. He argued that falling energy prices would offset the price increases caused by higher tariffs. Whether this will materialize, however, remains uncertain.
Bitcoin
Since Trump's inauguration, Bitcoin prices have fallen by 4% as optimism around his promise to make America "a crypto capital" has faded.
This may be due to the lack of concrete policy catalysts. So far, Trump has only announced that his administration will evaluate whether to create a “national digital asset reserve.” However, he did not specify a Bitcoin reserve, which may have been a disappointment to Bitcoin enthusiasts.
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