The US markets have been on a firm footing buoyed by President-Elect Donald Trump’s victory. However, what’s the implication of the Republican Party gaining control over US arms and Policymaking for global markets at large? Well, most market observers believe that this augurs well for US markets as well as the US dollar. For India, this could mean that the current trend of FII outflows may continue for a while now and the dollar’s outperformance is unlikely to abate either.
Kotak Institutional Equities believes that markets have already factored in higher earnings for the
US market and a stronger US dollar. JM Financial corroborates that lower corporate taxes for local manufacturing could be a key positive for US businesses and may be instrumental in driving capex and jobs. However, this can also increase the US fiscal deficit and keep interest rates high. The impact of higher tariffs on China also needs to be observed.
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1. Higher earnings for the US market
The Republican Party’s win is expected to trigger directives that are directed towards “pro-growth economic policies, such as lower tax rates for corporations and individuals and a higher focus on domestic manufacturing. The market has already factored in higher earnings for the US market,” as per an analysis by Kotak Institutional Equities. According to JM Financial, this indicates that “lower corporate taxes for local manufacturing could be a positive for US businesses. It will also drive capex and jobs. However, this can also increase the US fiscal deficit and keep interest rates high. Higher tariffs on China and the rest of the world could be inflationary.”
2. Stronger US dollar
“The US dollar is likely to stay stronger in the near term. However, it will weaken over the medium term,” stated Kotak. So far the dollar has strengthened significantly against most global currencies on expectation of a higher deficit in the US economy.
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