Is the Drop in Market Interest Rates Necessarily a Strategic Pause in Trump's Trade War? [ft. Inflation or Deflation]

Watching a recent Maeil Business Newspaper (Mae Kyung) Wall Street Weekly video uploaded on Saturday, the initial segment attributes the recent decline in the 10-year US Treasury yield to a phenomenon termed ‘Trump trade consolidation’.

This expression isn’t unique to the video; it’s widely used in other news reports. Other articles describe it as a ‘consolidation’ or ‘reversal’ of the Trump trade.

However, my initial reaction was, ‘Why should the market interest rate decline be seen as a consolidation of the Trump trade?’ Shouldn’t this also be considered ‘part of the Trump trade’?

To view this as a continuation of the Trump trade, wouldn’t the asset or stock in question have gradually risen due to anticipation before the US presidential election and continued to rise for a while after the confirmation of the election victory?

For example, the bank-related ETFs or Bitcoin below, which have maintained an upward trend before and after the election due to related regulatory easing, are such examples.

Especially in the case of Bitcoin, considered the biggest beneficiary of the Trump trade, it has maintained a steady trend despite a significant drop a few days ago.

Judging from Bitcoin’s trend, it doesn’t seem that the Trump trade has experienced significant consolidation or ended, and it appears to be continuing.

The Russell 2000 index, focused on small-cap stocks, also showed a sharp rise before and after the election, but its significant fluctuations after Trump’s victory make it ambiguous whether it can be considered a Trump trade beneficiary.

I believe the Russell 2000’s rise was due to the Federal Reserve’s shift towards a rate cut policy and the relatively low burden on its stock prices compared to large-cap tech stocks.

Like the dollar index below, which showed an upward trend before the election results and a sharp rise immediately after, followed by a recent downward trend,

However, observing the 10-year US Treasury yield and gold prices, we see a sustained upward trend until the election, but after the confirmation of the election results, they were stalled and then shifted to a downward trend.

Should this trend also be considered a ‘consolidation’ of the Trump trade?

The preconceived notion associated with Trump is ‘massive debt issuance due to tax cuts,’ so the ‘decline in market interest rates’ might be seen as a ‘Trump trade consolidation,’ a correction rather than the main direction.

If the market, after Trump’s election victory, found that the situation was unexpectedly ‘deflationary or disinflationary’ compared to previous expectations, the decline in market interest rates could be the ‘main narrative of the new Trump trade from the bond market perspective’ after the election.

This could be due to Trump 2.0’s anticipated policies, cabinet members, or the possibility of a future recession, among other reasons.

Looking at market indicators before and after the US presidential election, I believe that Trump 2.0’s administration, at least in its first term (and likely the second as well), will reflect a transition from the ‘high interest rate + strong dollar’ era of the previous three years to a ‘moderate to low interest rate + ultra-strong dollar’ era.

Before the confirmation of the US presidential election, the market anticipated a rebound in inflation, but immediately after Trump’s victory, it appears that the market suddenly shifted to a higher likelihood of deflation.