Analysis: From bitcoin to Mexican peso, ‘Trump trades’ are appearing again

Geo

18/10/2024 06:00

* 
      Small-cap stocks, bitcoin climb; Mexican peso, Treasuries
slip
    

        * 
      Trump Media & Technology Group shares up 140% since Sept.
23
    

        * 
      Investors debate if market moves are due to Trump or
economic
optimism
    

  
    By Saqib Iqbal Ahmed and Suzanne McGee
       NEW YORK, Oct 18 (Reuters) - Corners of financial
markets that could feel the impact of a Donald Trump victory are
stirring again, as the U.S. presidential race tightens with less
than three weeks until Election Day. 
Assets ranging from small-cap stocks to bitcoin have climbed in
recent weeks while the Mexican peso and Treasuries have slipped,
as polls show a tight race between Republican candidate Trump
and his Democratic opponent, Vice President Kamala Harris. 
The moves echo the so-called Trump trades from earlier this year
when he pulled ahead of President Joe Biden, only to fade after
Biden withdrew. 
Harris led Trump by a marginal 45% to 42% in a Reuters/Ipsos
poll released on Tuesday, a tighter race than the same poll
showed several weeks earlier. Trump has taken the lead in online
prediction markets such as Predictit and Polymarket.
Investors caution, however, that linking the investment moves to
Trump this time is more difficult, as many can also be tied to
rising economic optimism following a blowout U.S. jobs report
this month and a 50-basis-point interest-rate cut from the
Federal Reserve last month. 
"Some of this certainly could be being driven by Trump's
improved position in the predictive markets," said Steve
Sosnick, chief strategist at Interactive Brokers. 
    Due to strong economic data, however, “it’s really hard to
separate cause from effect, much less separate different
causes,” he said.
     
     
Among the biggest gainers are shares of Trump Media & Technology
Group  DJT.O , the former president’s media company, which have
broadly tracked Trump’s fortunes in polls and online prediction
markets since its listing this year. 
 Shares are up more than 140% since Sept. 23. 
“It’s the trade that is most levered to Trump’s election
prospects,” Sosnick said. 
Other beneficiaries include private prison operators Geo Group
 GEO.N  and CoreCivic  CXW.N , whose shares have risen about 18%
and 10%, respectively, this month. Trump has promised to crack
down on illegal immigration, which could boost demand for
detention centers.
The small cap-focused Russell 2000  .RUT  is up 4% since Oct. 10
and trades near its highest level since late 2021. Expectations
that Trump will keep taxes low and reduce regulation have
boosted shares of smaller companies, though analysts believe
they are also benefiting from greater confidence in the
economy. 
In foreign-exchange markets, Trump trades are visible in the
dollar’s rebound against a range of currencies, particularly the
Mexican peso, strategists said. 
 The peso  MXN= , seen as vulnerable to new tariffs Trump plans
to impose, is down 4% from its September high. MSCI's gauge for
Latin American currencies  .MILA00000CUS  has slipped over 3%
during that period.
    "Implied volatility in the dollar-peso pair has been
ratcheting up in line with Trump’s gains in betting markets,"
said Karl Schamotta, chief market strategist at payments company
Corpay in Toronto. 
Trump said on Sunday he would slap tariffs as high as 200% on
vehicles imported from Mexico.
The former president’s economic policies are seen as
growth-friendly and a catalyst for inflation, two factors that
could translate to higher Treasury yields, which move inversely
to bond prices, and a stronger dollar. 
    The dollar index  =USD , which measures the greenback's
strength against six major currencies, has risen more than 3%
since late September, as investors price in a shallower
trajectory for interest-rate cuts. Some of its gains, however,
are likely related to greater confidence of a Trump win, wrote
Thierry Wizman, global FX & rates strategist at Macquarie.
    Improved betting-market odds for Trump, who has positioned
himself as pro-cryptocurrency, appear to be lifting bitcoin. The
world's largest cryptocurrency is up 12% since Oct. 10, a rally
that Sean Farrell, head of digital asset strategy at Fundstrat
Global Advisors, attributed to rising confidence in a Trump
victory. 
    "If Trump secures a second term, the regulatory-risk-driven
discount applied to crypto would likely shrink to near-zero, and
investors would need to price in the possibility, however small,
of the government adopting a strategic bitcoin reserve," he
said.
In government bond markets, some investors believe Trump’s
improved standing has spurred a rise in the 10-year term premium
- a measure of the compensation investors demand to hold
long-term government debt securities - on concerns that the
former president’s proposals for lower taxes could increase the
budget deficit.
A New York Fed gauge measuring term premium turned positive last
week for the first time since July. The move has come amid a
broader rise in Treasury yields.
Part of the reason for those moves are expectations of a Trump
win, said Matt Eagan, portfolio manager and head of the full
discretion team at Loomis, Sayles & Company. 
    Still, not everyone interprets these market moves as bets on
a Trump victory. 
    "I think the election mostly remains as a toss-up," said
Sonu Varghese, global macro strategist at Carson Group. "The
story is really one of stronger economic growth and a supportive
Fed.”    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Trump trade    https://tmsnrt.rs/3A2F9qP
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Saqib Iqbal Ahmed and Suzanne McGee; Additional
reporting by Lewis Krauskopf and Davide Barbuscia; Editing by
Ira Iosebashvili and Rod Nickel)
 ((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 332 219
1971; Reuters Messaging:
rm://saqib.ahmed.thomsonreuters.com@reuters.net/))