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We’re less than a week away from the inauguration of the 47th US President, Donald J. Trump. In a manner reminiscent of 2017, Trump has found a way to shake global markets even before officially taking office on 20th January.
Inflationary fears continue to spook the US market. The US job market remains robust as NFP surprised higher last week (+256k v +165k exp.). While CPI appears to be moderating above the 2% target and despite PPI coming cooler, market participants still expect December’s CPI to come in higher than the previous reading.
Trump has widely publicized plans to impose tariffs on trading partners, mainly China, driving inflationary fears higher. Contrary to expectations of blanket tariffs from the outset, it now appears the new administration will gradually introduce tariffs on selected imports.
Plagued by the specter of inflation, bond yields have started to creep higher once again. Markets are now pricing only two cuts in 2025 and 2026 (the latest Fed Dot Plot had projected four), and the 10y and 30y US Treasury yields are approaching the 5% level.
As Treasury yields headed higher, equity markets suffered a scare as the S&P500 threatened to break below $5800. BTC followed suit, dropping briefly below $90k.
The macroeconomic environment doesn’t look conducive for risk assets right now given the recent developments. However, one bright spot is that Trump’s actual policies often differ significantly from his public rhetoric. Inflationary fears may not materialize as severely as markets anticipate.
For crypto, the Trump administration features crypto friendly personnel. Rumours that Trump will enact wide-ranging and crypto-friendly executive orders provide a short term tailwind, potentially supporting prices.
Expect heightened volatility before and after the inauguration as markets digest and adjust to a new term under Trump. We maintain cautious of the downside as the $90k level in BTC has been tested numerous times. Equity markets also appear fragile, and with bond yields globally moving higher, it can spell messy and gappy moves all around.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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