Trump 2.0 would trigger shockwaves in GCC and global markets

Bye bye Joe Biden. And hello Kamala Harris. Yes, she is enjoying a bounce in the polls, but the financial markets, political chancelleries and corporate CEOs need to consider scenarios if Donald Trump retakes the White House in November. 

GCC investors also may find it useful to incorporate the potential impact of Trumponomics on Planet Forex, Wall Street, GCC debt, gold, crude oil and Dr Copper. 

If the past is prologue, the market themes of July suggest that “Trump 2.0” may trigger seismic shifts in asset prices, geopolitics and global money flows.

---

Newsletter
Get the Best of AGBI delivered straight to your inbox every week

---

It is no coincidence that Nasdaq lost 3.7 percent in a week when Trump announced that the US had no special duty to defend Taiwan – a rollback of the bipartisan consensus that has governed US relations with Taipei since the epic Nixon-Mao summit in 1972. 

Taiwanese companies have a 90 percent market share in the production and assembly of AI servers. Any escalation in Chinese threats to its “renegade province” will mean the kiss of death for the big tech AI bubble on Nasdaq. Defensive domestic sectors such as US healthcare and utilities could well benefit.

Trump broke a taboo in global financial diplomacy when he talked down the dollar and directly criticised the Powell Fed in his first term.

His agenda to cut corporate taxes, restrict immigration and impose 10 percent tariffs on all imports (60 percent on Chinese imports) is ipso facto inflationary and hence negative for the greenback. 

• The GCC will feel the effects of the coming US recession
• Macron gambled and lost. Now bond markets will have their say
• GCC investors can make money in Starmer’s Britain

Since GCC currencies are pegged to the US dollar, central bankers in the region should brace for a rise in imported inflation and higher long-term interest rates as the US budget deficit, now $2 trillion or 7 percent of the American GDP, ignites a tsunami of new US Treasury debt issuance. 

The US bond market will impose an inflation risk premium on longer-term bonds, a theme that began this July with US Treasury yield curve steepener trades on Wall Street. Steepener trades mean that investors are seeking to profit from rising yield differences.

In the GCC bond market, investors would thus prefer shorter-duration assets issued by borrowers with the highest credit ratings and sovereign wealth assets relative to GDP, such as UAE. 

Even though Saudi Arabia’s debt/GDP ratio is only 30 percent of GDP, the kingdom has been the largest issuer of bonds and sukuk in the emerging markets in 2024.

Trump 2.0 is also negative for longer-duration bonds and sukuk issued by lower-rated sovereign and corporate borrowers in the GCC and the wider Middle East.

Trump’s return to power is negative for Europe. He has promised to freeze military aid to Ukraine, forge a rapprochement with the Kremlin and intensify the US protectionist moat against China.

This would compel the EU to boost defence spending at a time when weak coalition governments in Paris and Berlin face a rising public debt and budget nightmares. 

Trump 2.0 would undermine Nato and impact European companies with extensive China exposure, led by Dutch chipmaker ASML and Germany’s Siemens, Volkswagen, BASF, Daimler et al.

Trump 2.0’s immediate impact on Brent crude would be bullish because the White House is likely to resume its ‘maximum pressure’ sanctions against Iran

But Trump 2.0 is bullish for gold, which hit an all-time high of $2,483 an ounce when he was hailed as the new Republican unifier in Milwaukee.

A slowing US economy and softer labour market now mean that the futures markets price in a 97 percent probability of a Fed rate cut at the September Fed Open Market Committee and two more rate cuts in subsequent conclaves. 

Lower short-term dollar rates at a time of rising inflation and geopolitical risk are bullish for gold, which has been in a bull market since it bottomed near $1,600 an ounce amid Powell’s tight money pivot in 2022. 

The Chinese central bank has made no secret of its epic asset allocation shift from US Treasury debt into gold to hedge its currency reserves. Trump 2.0 would only accelerate this trend at a time when high inflation in Egypt and Turkey forces the central bank in Cairo and Ankara also to boost their bullion reserves.

Trump 2.0’s immediate impact on Brent crude would be be bullish because the White House is likely to resume its “maximum pressure” sanctions as Iran, which Biden had relaxed in his quest to resurrect Obama’s Iran Nuclear Deal.

Alamy/Zuma Press

So it is rational to expect a supply risk premium in crude oil prices as the global wet barrel market loses at least 1 million barrels a day of Iranian exports from Kharg Island. 

Yet Trump is also passionate about his “drill baby drill” ethos in America’s domestic oil sector, which could increase US supply in the medium term.

He also wants to upgrade the US security and arms sales relationship with Saudi Arabia in exchange for Riyadh’s cooperation on oil prices. So, expect Brent in a $75 to $95 trading range.

Trump 2.0’s draconian tariffs against Chinese electric vehicles and China’s property/shadow banking crises signal a decline in demand for copper and lithium as production lines scale back. This is bearish for copper and for Chinese EV shares.

All in all, we can expect US shockwaves to reach all corners of the Gulf markets later this year.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also an adjunct professor of real estate investing and banking at the American University of Sharjah