What Trump’s victory means for UK markets
Donald Trump and the Republicans have had a stunning victory in the US elections. Now is the time to dissect what it means for the UK.
The win for Trump brings the issue of tariffs front and centre. One of Trump’s main campaign pledges was to impose tariffs on imports. China is likely to face the brunt of Trump’s potential tariff policy, however, he has also proposed a 10 per cent flat tax on all imports to the US.
The US is the UK’s largest export market; 25 per cent of all manufactured UK exports went to the US in 2023, which totalled more than £56bn. It is important for many UK businesses to maintain strong trade links with the US as we wait to see the detail of Trump’s plans for tariffs.
The FTSE 100 and the FTSE 250 are both internationally focused indices. The FTSE 100 derives 80 per cent of its profits from overseas. For the FTSE 250, it is more than 50 per cent. Thus, as a medium-sized economy with outward looking equity markets, the UK is vulnerable to Trump’s isolationist and America First agenda.
As a medium-sized economy with outward looking equity markets, the UK is vulnerable to Trump’s isolationist and America First agenda
Tariffs can impact the UK economy in two ways. Firstly, they could weigh on the stock market. BAE Systems and Rolls Royce are two of the biggest companies in the FTSE 100, they are also large exporters to the US. Their stock prices could be vulnerable if Trump sticks to his campaign pledge. Secondly, it could hurt the real economy, through job losses. Land Rover Defenders were the most exported car from the UK to the US in 2022. Trump has threatened to slap 100 per cent tariffs on imported cars, which would be bad news for Jaguar Land Rover.
However, in the immediate aftermath of Trump’s election win, the UK stock market has surged along with US and European shares. BAE Systems and Rolls Royce are both top performers on the FTSE 100 on Wednesday. Stock investors may be relieved that Trump did not mention tariffs in his victory speech earlier this morning. They might also consider the upside to US growth on the back of a Trump win, which may cancel out any impact from potential tariffs.
In the short term, tariffs are not worrying the market. Instead, the biggest impact of Trump’s win has been felt in the FX market. Sterling is down more than one per cent on the back of the US election result. Trump is associated with a strong dollar, so if the dollar continues to rise, we could see a structural shift lower in the pound for the long term.
Oil prices
The aftermath of Trump’s victory has also seen a sharp sell off in the price of oil. However, BP and Shell are higher today. Trump wants the US to use more oil and he is expected to reverse President Biden’s subsidies for renewable energy. Since the US is the world’s largest economy, Trump is supportive of the demand side for oil in the long term. Although there could be extra oil supply from the US during a Trump presidency, we think that the demand story is more powerful for oil, and it may limit the downside for the oil price, and boost UK energy stocks.
Elsewhere, a big part of the Trump trade is to sell bonds, as his policies are expected to boost US inflation. In the aftermath of his election win, US Treasuries have sold off and yields have surged across the curve. This also benefits the UK in the short term, since it means that the bond vigilantes are less focused on the UK, as they turn their attention elsewhere, which gives Gilts a chance to recover.
Overall, the immediate impact of the Trump presidency is a boost to global risk sentiment, which is positive for UK equity markets.
Kathleen Brooks is research director at XTB