Global Markets Brace for a Shocking Reality Check After a Month of Trump

November saw a seismic shift in financial markets, driven by Donald Trump’s U.S. election victory on November 5. Dubbed “Trump trades,” the post-election market rally rewarded U.S. stocks, the dollar, and cryptocurrencies like Bitcoin while punishing assets sensitive to tariffs, such as European exporters and Mexico’s peso. Wall Street gained momentum, the dollar rose by 2%, and Bitcoin skyrocketed. However, December could bring challenges. Fiscal policies under Trump risk a bond market backlash, inflation spikes, and supply chain disruptions. BCA Research noted that elevated equity valuations signal complacency, with markets yet to price in potential hurdles.

Currency Market Turbulence

November was harsh for global currencies. The euro plunged over 3% to around $1.05—its sharpest drop since early 2022—amid tariff concerns, political instability in Europe, and a regional economic downturn. Mexico’s peso fell by over 1% while China’s offshore yuan dropped by nearly 2%. Sterling also saw a 2% decline. Analysts are divided on whether Trump’s policies signal a structural economic shift or a temporary market reaction. Nick Rees of Monex Europe highlighted the debate, questioning if the panic reflects broader economic changes or market overreaction.

Bitcoin’s Meteoric Rise

Bitcoin emerged as November’s standout performer, surging 37% and nearing the $100,000 milestone. Expectations of a more crypto-friendly regulatory environment under Trump fueled the rally. AJ Bell analyst Dan Coatsworth speculated that breaching $100,000 could push Bitcoin further into mainstream adoption. However, risks of speculative excess remain. A sudden drop could catch overoptimistic investors off guard, raising concerns about Bitcoin’s long-term stability.

Tech Gains Amid Tariff Risks

The Nasdaq 100 posted its best monthly performance since June, driven by Tesla’s 33% surge and AI enthusiasm boosting Nvidia. Yet, challenges loom. Tariffs threaten tech supply chains, and excessive AI spending by major players like Microsoft and Meta has sparked investor caution. The European Central Bank recently warned of potential global repercussions if an AI bubble bursts, which could severely impact tech stocks dominating global equity markets.

Diverging Bond Markets

November marked a divergence in global bond markets. U.S. 10-year Treasury yields remained stable but have risen significantly since September, reflecting higher inflation expectations under Trump. Capital Economics predicts yields could climb to 4.5% by year-end. Conversely, German 10-year yields fell by over 20 basis points to 2.15%, their steepest monthly drop in 2024, amid economic weakness and escalating geopolitical tensions. Japan saw the opposite trend, with bond yields rising on speculation of a potential rate hike.

Banking Sector’s Mixed Fortunes

Big U.S. banks thrived in November, with an index of banking stocks soaring 13% on deregulation hopes. In contrast, European banks struggled, losing 5% due to economic downturn fears. A Deutsche Bank report urged European banks to enhance fee-generating activities like wealth management and dealmaking to remain competitive.

Trump’s election has catalyzed significant market shifts, creating opportunities and challenges across asset classes. As December unfolds, investors should brace for volatility as fiscal policies, inflation, and geopolitical risks continue to influence global markets.