(Bloomberg) — After an initial stampede into “Trump Trades,” investors in some asset classes are tapering their enthusiasm as they query whether Donald Trump will push through his ambitious tariff proposals as US president.
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The dollar reversed much of its post-election surge by Thursday’s close, and is trading little modified on Friday. Treasury yields have also returned to recent ranges following a two-day whipsaw. Chinese stocks and the yuan, earlier hammered by concerns over higher tariffs, have since gained ground.
The moves point to the potential for volatility as investors weigh whether Trump’s policies will match his guarantees on the campaign trail. Because the market jolt subsides, focus is popping to other big events: the Federal Reserve’s easing path and China’s fiscal stimulus.
“There’s a way that even probably the most exuberant Trump Trade investors are taking a step back to think: at this point, are the bets overdone?,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. Traders are “fascinated with the execution and the way a few of his policies may be transmitted effectively.”
A key query on investors’ minds is how much of Trump’s threatened tariffs — as much as 60% on Chinese goods — will turn into a reality. Some are also taking profit on trades, including bullish dollar and bearish Treasury wagers, that fared spectacularly well earlier this week on the expectation that Trump’s policies will spur inflation and keep rates higher for longer.
As doubts begin to creep in, assets seen as benefiting under Trump have largely moved sideways after the post-election pop. US stocks have been an exception, extending gains Thursday on speculation the brand new administration might be supportive for the nation’s corporations.
Bitcoin has been little modified since surging to a record due to the president-elect’s pro-crypto stance. Bloomberg’s dollar gauge was up lower than 0.1% on Friday. The ten-year Treasury yield held at 4.33%, after the Fed’s rate cut helped pare a few of Wednesday’s surge.
Yet the trades may regain momentum, in keeping with RBC Capital Markets.
If the Republicans keep control of the US House, with the ultimate counting still underway, the resulting sweep will smooth the trail for Trump’s tax cuts, immigration and trade policies, in addition to a confirmation of his nominees.