TLDR:
- Global markets experiencing sharpest decline since August following Trump’s election win
- Non-US MSCI index fell 1.6%, with European stocks down 2.1%
- Trump’s proposed tariffs: 10% across-the-board, 60% on Chinese imports
- US stocks reaching record highs while international markets suffer
- Central banks globally taking defensive actions to protect currencies
Global financial markets are showing a clear divide following Donald Trump’s recent election victory, with US stocks climbing to record highs while international markets face their steepest decline since August. The contrast highlights growing concerns about the president-elect’s proposed trade policies and their potential impact on the world economy.
The MSCI index of large and mid-sized stocks outside the United States has dropped 1.6% in a single day, marking its largest daily decline in three months. European markets have been hit particularly hard, with the Stoxx Europe 600 Index falling 2.1%, its worst performance in three months.
Emerging markets are feeling the pressure as well. An index tracking emerging market stocks has decreased by 2%, while related currencies have nearly erased their gains for the year, falling 1% since the election results were announced.
The market reaction comes as Trump begins to assemble his cabinet, choosing individuals who align with his “America First” trade agenda. These appointments have reinforced expectations that his campaign promises regarding trade policy may become reality.
Among Trump’s proposed policies is an across-the-board tariff of at least 10% on imports, with a notably higher 60% tariff targeted specifically at Chinese goods. These proposals have raised concerns among international investors and economists about the potential for widespread trade disruption.
European analysts have expressed particular worry about the impact on their economies. ING bank analysts warn of the possibility of a “full blown recession” in Europe under Trump’s proposed tariffs. The German central bank has estimated their economy could face a 1% reduction in GDP if these policies are implemented.
China’s economy, already showing signs of strain, could face additional challenges under the proposed tariff structure. Analysis from UBS suggests that a 60% tariff could make much of the current US-China trade “unviable,” potentially leading to reduced economic growth globally.
In contrast to international markets, US domestic markets have shown remarkable strength. Both the S&P 500 and the Dow Jones Industrial Average have reached new record highs. Sectors expected to benefit from Trump’s policies, including banking and technology stocks, have seen notable gains.
The divergence has prompted investors to adjust their strategies, with fund managers increasing their exposure to US stocks to the highest levels since 2013, according to Bank of America Corp’s recent survey.
Several central banks have already taken defensive actions. Bank Indonesia and Banco Central do Brasil have intervened in currency markets to support their respective currencies. The People’s Bank of China has also moved to strengthen its currency reference rate above market expectations.
Some investment managers are seeking safer alternatives within the international market. Pictet Asset Management SA has increased investments in markets like India, which they believe may be less affected by Trump’s policies. Other analysts suggest that Southeast Asian markets might benefit if trade restrictions prompt companies to shift investments away from China.
The dollar has reached its highest level in two years, adding to the pressure on international markets. This strength reflects investors’ expectations of higher U.S. interest rates and potential fiscal stimulus under the Trump administration.
Recent market data shows continued pressure on Asian stocks, with South Korean shares approaching one-year lows. Foreign investors are particularly selling shares in companies like Samsung Electronics that could be vulnerable to trade restrictions.
European markets continue to show weakness, with analysts watching closely for any signs of stabilization. The euro has declined against the dollar, reflecting broader concerns about the region’s economic outlook under potential new trade policies.
The latest market movements suggest investors are preparing for a period of increased volatility as Trump’s trade policies take shape.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
