Wall Street hits record high; dollar, Treasury yields surge as Trump wins presidency

By Koh Gui Qing and Dhara Ranasinghe

NEW YORK/LONDON (Reuters) -Wall Street marched to record highs on Wednesday and major stock markets around the world surged, while bitcoin also hit an all-time-high and the dollar was set for its biggest one-day jump in four years after Donald Trump was elected U.S. president.

Trump’s decisive victory pummelled long-dated Treasuries as yields sank in anticipation that Trump would hike tariffs as he promised during his campaign, increasing the U.S. deficit and inflation, and causing the Federal Reserve to cut rates by less than it otherwise would have.

Trump, 78, recaptured the White House in Tuesday’s election following a campaign that deepened the polarization in the country.

In the near term, we see U.S. equities supported by solid economic and corporate earnings growth, political clarity and Federal Reserve rate cuts,” BlackRock Investment Institute said. “Longer term, much depends on how much of Trump’s agenda is enacted.”

The VIX, a measure of volatility also perceived as “Wall Street’s fear gauge,” dived 19% as investors scooped up risky assets across the board.

The S&P 500 Index jumped 1.7%, the Dow Jones Industrial Average surged 3%, and the Nasdaq Composite leapt 1.95%. All three indices hit record highs on Wednesday. [.N] The MSCI index for world stocks rose 0.8%.

Small cap U.S. stocks in particular were boosted by expectations that a Trump presidency would offer tax cuts and support domestic companies.

The dollar index rallied 1.6% and was set for its best day since September 2022.

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

European shares gave up earlier gains and fell 0.5%, and 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 U.S. 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 U.S. bond yields higher with expectations for a higher fiscal deficit and inflation.

BONDS DISCONNECT

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

The ten-year Treasury yield rallied 16.2 basis points to 4.4531%, its largest gain in a single day in nearly seven months.

The 30-year Treasury yield rose 18 bps to 4.6298% its biggest one-day increase since March 2020’s pandemic-induced volatility. [US/]

While markets were still confident the Federal Reserve would cut interest rates by 25 basis points 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%, 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 $75,397 and was last up 7% on the day. Trump is seen as more actively supportive of cryptocurrencies than the Democratic candidate, Vice President Kamala Harris.

In traditional currencies, the euro was hurt by potential tariffs and the widening differential between U.S. and European rates, and was last down 1.8% at $1.0729, set for its biggest daily fall since 2016’s Brexit referendum, outpacing a 1.3% fall in sterling.

The dollar, meanwhile, jumped 1.9% to 154.43 Japanese yen,, and gained 1.4% 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 lost early gains to turn flat, and Hong Kong stocks fell over 2%.

Mexico’s peso briefly dropped to as low as 20.8038 per dollar for the first time since August 2022, more than 3% below its previous close – the biggest such tumble since Mexico’s election in 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. [O/R]

U.S. crude edged up 0.2% to $72.14 per barrel, while Brent was flat at $75.45.

Gold prices dropped 2.8% to $2,668.26 an ounce, off a recent record peak of 2,790.15 [GOL/].

(Reporting by Dhara Ranasinghe in London; additional reporting by Wayne Cole in Sydney and Alun John in London; Editing by Angus MacSwan and Marguerita Choy)