Key Takeaways
- • Luigi Buttiglione, formerly head of strategy at Brevan Howard and now advising major hedge funds via LB Macro SA, argues the initial dollar selloff after a Democratic midterm sweep misses the bigger picture, stating "A weaker Trump should mean a stronger dollar."
- • Markets initially priced in a tighter fiscal stance and softer inflation after the midterms, sparking dollar selling and a bid for Treasuries; the Nasdaq 100 fell 5.8% on Thursday.
- • Buttiglione expects the US to keep outpacing Europe on productivity and growth, keeping US rates higher, with futures implying two Fed rate increases before mid next year and roughly a 50% probability of a third.
- • Buttiglione suggests the political shift could give Fed Chairman Kevin Warsh more room to focus on taming inflation without pressure to cut rates.
- • Possible energy price declines tied to faster efforts to end the Middle East war could benefit parts of the US equity market, though not areas tied to the so-called Trump trade such as defense, energy and some tech.
Summary
The immediate market reaction to a Democratic sweep in the midterm elections was a weaker dollar and a rally in Treasuries, driven by expectations of a tighter fiscal stance and softer inflation. The greenback found its footing on Thursday after earlier touching its weakest level in more than a month, while risk appetite weakened sharply, with the Nasdaq 100 sliding 5.8% that day.
Luigi Buttiglione, formerly head of strategy at Brevan Howard, who left the firm in 2017 and now advises major hedge funds through LB Macro SA, argues that the knee-jerk selloff overlooks the larger picture. "A weaker Trump should mean a stronger dollar," he said. He pointed to earlier episodes in which concerns about Donald Trump's foreign-policy moves, including tariffs on allies and rivals and the push to gain control of Greenland, weighed on the currency. He also argued the political shift could give Fed Chairman Kevin Warsh more latitude to pursue his hawkish instincts and focus on reducing inflation without pressure to cut rates.
Buttiglione expects the US to continue outpacing Europe, supported by stronger American productivity that helps the economy hold up and keeps rates higher than across the Atlantic. Futures currently imply the Fed will deliver two rate increases before mid next year, with the probability of a third at roughly 50%. He said the Republican midterm loss should reduce market angst over Trump's unpredictable policy swings.
Buttiglione also noted that if the midterm outcome accelerates efforts to end the Middle East war, energy prices could fall, benefiting parts of the US equity market. Such a move may not extend to sectors boosted by the so-called Trump trade, including defense, energy and certain technology shares.
Luigi Buttiglione, formerly head of strategy at Brevan Howard, who left the firm in 2017 and now advises major hedge funds through LB Macro SA, argues that the knee-jerk selloff overlooks the larger picture. "A weaker Trump should mean a stronger dollar," he said. He pointed to earlier episodes in which concerns about Donald Trump's foreign-policy moves, including tariffs on allies and rivals and the push to gain control of Greenland, weighed on the currency. He also argued the political shift could give Fed Chairman Kevin Warsh more latitude to pursue his hawkish instincts and focus on reducing inflation without pressure to cut rates.
Buttiglione expects the US to continue outpacing Europe, supported by stronger American productivity that helps the economy hold up and keeps rates higher than across the Atlantic. Futures currently imply the Fed will deliver two rate increases before mid next year, with the probability of a third at roughly 50%. He said the Republican midterm loss should reduce market angst over Trump's unpredictable policy swings.
Buttiglione also noted that if the midterm outcome accelerates efforts to end the Middle East war, energy prices could fall, benefiting parts of the US equity market. Such a move may not extend to sectors boosted by the so-called Trump trade, including defense, energy and certain technology shares.
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