Global equity markets rose after Donald Trump’s election win, with major benchmarks climbing between 1.5 % and 3 % as investors celebrated the former president’s return to office.
Bond yields rise on policy expectations
The U.S. 10‑year Treasury yield jumped nearly 11 % in less than a month following the election. This move reflected expectations of higher rates under a second Trump administration. On November 6, the yield spiked more than 3 % after the victory speech in Florida, where the candidate pledged to honor his campaign promises.
The document notes that interest rates have already risen about 1 % and that the Federal Reserve now faces a tighter policy environment. The October increase marked the steepest monthly rise since September 2022, and analysts link the move to potential tariff hikes and a trade‑war mindset that could limit the Fed’s ability to cut rates later in the year.
Tariff policy could reshape trade and inflation
Trump has signaled a willingness to impose a statutory 60 % tariff on Chinese imports and a broader 10 % levy on other countries within weeks of taking office in January 2025. Trade experts warn that such measures would likely trigger retaliation from Beijing, dampening global trade sentiment.
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According to a Nomura client survey, a second Trump term could negatively affect the federal funds rate by the end of that year. “Combative trade policy would likely weigh on economic activity, which is dovish. However, we think it would take some time for the Fed to assess inflationary shocks stemming from higher tariffs before resuming rate cuts,” the report states.
Trade analysts project an average effective tariff rate of 11 %–12 % in 2026, before a presumed cooling period brings it down to 7 %–8 %. This would be a significant rise from the current 2.5 %–3 % effective rate.
Even with Republican control of the Senate and the House, existing agreements such as the USMCA could limit the president’s ability to impose tariffs on North American partners, though the report suggests he may still pursue aggressive measures.
If a broader tariff war emerges, consumer‑price inflation could rise sharply, and U.S. growth may suffer as a result.
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On Thursday, the Federal Reserve is expected to cut rates by a quarter point, a move markets have been counting on. However, the changed policy outlook could prompt central banks worldwide to adopt a more cautious stance on future rate reductions.
Although Trump has historically favored easy monetary policy, the anticipated inflation from higher tariffs may lead the Fed to adopt a less aggressive cutting cycle.
If those adjustments prove costly, inflation could stay raised longer than policymakers expect, forcing the Fed to keep rates higher for an extended period.
Investors will watch closely for any statements from the administration that hint at the timing and scope of tariff implementation, as well as early signals from the Fed regarding its rate‑cut timetable.