US stocks, Bitcoin hit record highs after Trump win

Wall Street tore to record highs on Wednesday and major stock markets around the world surged, while bitcoin hit an all-time-high and the dollar was set for its biggest one-day jump in four years after Donald Trump was elected US president.

Trump's decisive victory pummelled long-dated Treasuries and revived the "Trump trade," as yields rose in anticipation that Trump will hike tariffs as he has promised, increasing the US deficit and inflation and causing the Federal Reserve to cut interest rates by less than it otherwise would have.

Trump, 78, recaptured the White House in Tuesday's election with resolute support, despite news reports and polls that said it was a closely contested election, reports Reuters.

“The fact that he won so handily, and it was called so quickly, I think that was a bit of a shock to the market," said Paula Comings, head of foreign exchange sales at US Bank. "We have seen now massive rallies in risk assets.”

The VIX, a measure of stocks' volatility also perceived as "Wall Street's fear gauge," dived 21 per cent as investors celebrated in part the clarity of the election outcome.

The S&P 500 Index, opens new tab jumped 2.5 per cent, the Dow Jones Industrial Average surged 3.6 per cent, and the Nasdaq Composite leapt 3.0 per cent. All three indexes hit record highs on Wednesday. The MSCI index for world stocks, opens new tab rose 1.3 per cent.

Shares in electric car maker Tesla, opens new tab leapt 15 per cent after Elon Musk, its billionaire CEO, emerged as one of Trump's key supporters in the final leg of his 2024 campaign.

Investors appeared to bet on Tesla's benefiting from Musk's ties with Trump, who has said he would create a government efficiency commission headed by Musk to cut federal spending.

Shares in Trump's social media company, Trump Media & Technology Group, opens new tab, gained 5.9 per cent to $35.96 after surging as much as 42 per cent overnight. The stock has approximately halved in value since hitting a record high in March.

The dollar index rallied 1.7 per cent and was set for its best day since March 2020.

Outside the United States, investors were decidedly less euphoric, weighed by concerns that higher tariffs under Trump would hurt global trade and economic growth.

The euro extended losses by a touch late in the day after German Chancellor Olaf Scholz sacked his finance minister, and said he will hold a parliamentary confidence vote in the government in January, triggering political chaos in Europe's largest economy.

European shares gave up earlier gains and fell 0.5 per cent, opens new tab. Mexico's peso sank to its weakest level in over two years.

"The market is definitely moving in line with the Trump playbook; stocks and small caps, in particular, are higher on the idea that Trump will be good for US companies," said Seema Shah, chief global strategist for Principal Asset Management in London.

"Across emerging markets, you can see China and Europe are struggling with the idea that they could face higher tariffs, and US bond yields higher with expectations for a higher fiscal deficit and inflation."

BONDS DISCONNECT

US borrowing costs surged particularly for longer-dated bonds, suggesting concern from investors about the US deficit path.

The 10-year Treasury yield rallied 14 basis points to 4.43 per cent, its largest gain in a single day in nearly seven months.

The 30-year Treasury yield shot up 16 bps to 4.6085 per cent, its biggest one-day increase since March 2020's pandemic-induced volatility.

While markets were still confident the Federal Reserve would cut interest rates by 25 basis points at the close of its two-day meeting on Thursday, they slightly reduced bets on further easing in December.

"The big challenge for markets is that if you do see tariffs come through you need to balance the short-term nature of inflation risks with the medium-term aspect of lower growth," said Justin Onuekwusi, chief investment officer at investment firm St. James's Place. "The market appears to be thinking about inflation right now."

In contrast, European government bonds rallied, and German two-year bond yields fell 11 basis points to 2.19 per cent, while money markets priced in lower European Central Bank rates.

"For European businesses, Trump’s return to the White House would mean considerable trade policy and geopolitical uncertainty, with negative implications for growth on the continent," said Berenberg chief economist Holger Schmieding.

CURRENCY WINNERS AND LOSERS

Bitcoin emerged as one of the clear winners of the day.

The cryptocurrency climbed to a record high of $76,086 and was last up 9.6 per cent. Trump is seen as more actively supportive of cryptocurrencies than the Democratic candidate, Vice President Kamala Harris.

Bitcoin price are at record high at around $75,000 on Trump's potential victory and saw the biggest daily change since March 2023.

In traditional currencies, the euro was hurt by potential tariffs and the widening differential between US and European rates. It was last down 1.8 per cent at $1.0730 , set for its biggest daily fall since 2016's Brexit referendum and outpacing a 1.2 per cent fall in sterling .

The dollar jumped 2 per cent to 154.59 Japanese yen, , and gained 1.4 per cent on the offshore yuan to 7.1969 yuan amid reports Chinese banks were selling dollars to slow the yuan's decline.

China is seen on the front line of tariff risk, and its currency in particular is trading on tenterhooks with implied volatility against the dollar around record highs.

Chinese stock markets have surged to almost one-month highs as investors expect a meeting of top policymakers in Beijing this week to approve local government debt refinancing and spending. Chinese blue chips (.CSI300), opens new tab lost early gains to turn flat, and Hong Kong stocks (.HSI), opens new tab fell over 2.0 per cent.

Mexico's peso briefly dropped as low as 20.80 per dollar for the first time since August 2022, more than 3.0 per cent below its previous close - the biggest such tumble since Mexico's election in the summer roiled domestic assets.

Ukraine's international sovereign bonds rallied nearly 2 cents, boosted by bets that a second Trump term could lead to a quicker end to Russia's war in Ukraine.

The sharp rise in the dollar pressured oil prices, and other commodities, as it makes them more expensive when buying in other currencies.

US crude lost 0.2 per cent to $71.83 per barrel, while Brent fell 0.6 per cent to $75.11.

Gold prices dropped 3.1 per cent to $2,660.22 an ounce, off a recent record peak of $2,790.15.