Recently, global assets and the Chinese market have been influenced by interest rate cuts and Trump 2.0, but the interweaving of the two types of transactions has made assets not perform according to the market's expected "script," appearing chaotic. For example, Bitcoin has surged, gold has fallen back after rising on the expectation of interest rate cuts, leading technology stocks, copper, and crude oil have all declined, and the Hong Kong stock market and dividend style have also been adjusted. Behind this chaos, there are factors that contradict the impact of interest rate cuts and Trump 2.0, as well as the influence of the interest rate cut transaction running ahead.

The impact mechanism and rhythm of the interest rate cut transaction have been discussed more clearly, but the details of Trump's policies are still emerging, and there are even "contradictions" between different positions. Recently, there have been a series of important developments in the U.S. election, including Trump's assassination attempt, the Republican Party's platform, the determination of the vice-presidential candidate, and Biden's withdrawal, all of which are affecting the election situation and the transaction itself, and also providing us with more policy details. Therefore, in this article, we combine the latest Republican platform, Trump's exclusive interview, and the new clues provided by Vance to further sort out the most likely policy direction and asset impact of "Trump 2.0."

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Latest election developments: Trump's assassination attempt, Biden's withdrawal in support of Harris

Current election situation: Trump's assassination attempt; Biden's withdrawal

After Trump's assassination attempt, his approval rating has risen again. On July 13, Trump was injured in an attack while attending a campaign rally in Pennsylvania, with at least two deaths, including the shooter, and two serious injuries on the scene [3]. The PredictIt betting website's win rate shows that Trump's probability of winning increased from 56% to 68% after the shooting [4]. The RCP poll support rate shows that Trump (47.7%) leads Biden (44.7%) by an additional 3 percentage points.

The leading advantage in swing states has also expanded. Poll support rates reflect the general election situation more, and observing the support rates in swing states is more accurate and important. From the perspective of electoral votes in each state, as of July 17, Trump leads with a total of 219 electoral votes, and Biden has a total of 198 electoral votes. Among the seven main swing states in 2024, Trump currently has a leading advantage of more than 5 percentage points in Arizona (6%), North Carolina (5.7%), and Nevada (5.1%), and the leading advantage in Pennsylvania (4.5%), Georgia (4%), and Wisconsin (3.3%) has also expanded further, but the election situation in Michigan is still tense, with only a 1.7% lead. Considering Vance's background and policy positions from the Midwest, Trump's choice of Vance as his running mate and vice-presidential candidate this time also helps to consolidate Trump's position in swing states, especially in attracting the "Rust Belt" region.

The possibility of the Republican Party "sweeping" has increased. In addition to the presidential election, the composition of Congress is also very important. Whether the president can get the support of Congress, especially the House of Representatives that leads fiscal and tax policy, will directly affect whether the relevant policies can be smoothly promoted. The current Biden administration is facing a "divided Congress," and it is facing multiple constraints from the Republican-controlled House of Representatives on issues such as the debt ceiling and government shutdown. The House of Representatives is currently led by the Republican Party (219 votes vs. 213 votes, with 3 seats vacant), and in the 2024 congressional elections, all 435 seats in the House of Representatives will be up for re-election, with 270toWIN predicting that the Republican Party is expected to get 209 votes vs. the Democratic Party's 201 votes. The Senate is currently dominated by the Democratic Party (51 votes vs. 49 votes, with 4 votes from independent Democrats). In the 2024 election, 34 of the 100 seats in the Senate will be up for re-election, and 270toWIN currently predicts that the Republican Party may secure 50 votes, with the Democratic Party getting 48 votes (including 2 votes from independent Democrats).

Biden's withdrawal increases election uncertainty. On July 21, Biden announced his withdrawal and supported the nomination of the current Vice President Harris as the Democratic presidential candidate, which helps to partially salvage some Democratic voters who are disappointed with Biden's performance, and Trump's probability of winning also slightly dropped to 61%. However, with only 100 days left before the election, whether Harris can get the Democratic National Convention's nomination in mid-August and unite supporters is still very uncertain.

Republican National Convention: Determine the vice-presidential candidate and announce the platform

Announcement of the new Republican Party platform. The 2024 Republican National Convention was held in Milwaukee, Wisconsin, USA, from July 15 to 18, and the 2024 Republican Party platform (2024 Republican Party Platform) passed by the Republican National Committee's platform committee on July 8 was officially implemented at this convention. The focus includes inflation policy, tax policy, trade policy, energy policy, and content related to cryptocurrencies.Technology leaders may face certain antitrust policy pressures, but the AI industry trend will not be interrupted. Large multinational technology companies will be suppressed by "antitrust" actions, and recent export restrictions have also sparked market concerns about demand, becoming a reason for the sharp drop in stock prices. However, the AI industry trend will still be the key to determining the trend of technology leaders. Although the current leading technology stocks have high performance and market value concentration (accounting for more than 30% of the total market value of US stocks), their profits and cash flow ratios are also far higher than the level of the 2000 technology bubble (net profit ratio of 28%, operating cash flow ratio of 24%), indicating that their performance is supported by fundamentals. At the same time, AI demand supports the increase in the scale of capital expenditures, with the capital expenditures of leading technology companies increasing by 25% year-on-year in the first quarter, and the consensus expectation for a year-on-year growth rate of 50% in the second quarter.

Energy Policy: Returning to traditional energy and canceling electric vehicle subsidies. Trump reiterated in an exclusive interview that "he will reduce inflation by vigorously developing oil," and also mentioned in his speech at the Republican National Convention that "he will immediately end the destructive inflation crisis, reduce interest rates, and reduce energy costs," and stated that "the 'liquid gold' under our feet is more than any other country" and "many things start with energy." Regarding electric vehicles, Trump expressed a clear opposition, stating in his speech that he would end Biden's electric vehicle mandate (Electric Vehicle Mandate, which has currently driven the private sector to invest $177 billion in the electric vehicle and battery manufacturing sectors [10]) on the first day of taking office, and impose a 100% to 200% tariff on Chinese new energy vehicles, thereby saving the American automotive industry and saving American consumers thousands of dollars per vehicle.

The increase in crude oil supply may suppress oil prices in the short term, and the cancellation of electric vehicle subsidies will also damage the electric vehicle industry chain and related copper demand, but in the long term, it is actually beneficial to crude oil demand. Trump's policies may structurally boost the sentiment of some cyclical stocks, but the cancellation of new energy subsidies will have a greater negative impact on the new energy vehicle industry.

Dollar: Promote a "weak dollar" to boost exports and American manufacturing. Trump's economic advisor and former trade representative Lighthizer recently stated that he hopes to promote a weaker dollar to reduce the US trade deficit [11]. Trump also said in an interview with Bloomberg that "because the prices are too high, no one will want to buy our products soon." Vance also questioned Powell at the 2023 Senate hearing, stating that the dollar as a reserve currency is a tax on American manufacturers, mentioning that "on the one hand, we consume a large amount of basically useless imported goods, and on the other hand, our industrial base is being hollowed out, which makes me wonder if the status of the reserve currency has also brought some negative effects" [12]. Compared to Trump's majority policies that support interest rates and the dollar, artificial administrative intervention to weaken the dollar may push up commodity prices and import costs, and will also affect global trade.

It is possible to appoint JPMorgan Chase CEO Dimon as the next Treasury Secretary, and pay attention to the progress of financial regulation relaxation. Trump mentioned in an exclusive interview that he met with more than 80 CEOs, including Apple's Tim Cook and JPMorgan Chase's Jamie Dimon, at the June Business Roundtable, and stated that he would consider JPMorgan Chase CEO Dimon as the next Secretary of the Treasury. Dimon once criticized the US bank regulatory provisions, stating that "these provisions may harm low-income customers and add more risks to the financial system" [13].

Behind the chaotic performance of assets: the interweaving of interest rate cuts and Trump 2.0, and Trump's different positions also have "contradictions"

What are assets trading? The different logics of interest rate cuts and Trump trades

Based on the current Trump policies and the asset implications of this round of interest rate cuts, we have sorted out the trading logic of major assets over the past week. We found that interest rate cut trades are more reflected on the total level, but the macro impact of the sum of Trump's policies is still to be clarified, so it is more obvious at this stage in the industry and structural aspects.

► Interest rate cut trades are more reflected on the macro total level, initially for loose trading, and then gradually switching to reflation, leading the trend of US Treasury rates, the dollar, gold, copper, etc.

1) US Treasury rates have generally fallen by 22bp since July, with interest rate cut expectations leading the long-end rates to fall first, which is in line with the interest rate performance law in the early stage of interest rate cut trading. On the contrary, if the Trump trade dominates, inflationary policies may limit the downward space of US Treasury rates;2) The US dollar has fallen by 1.4% since July, with the interest rate index once breaking below 104, more affected by the interest rate cut trading, while Trump's high tariff policy is expected to push the dollar to strengthen;

3) Gold has fallen back after rising, with a relatively sharp correction. Since July, gold has first risen and then fallen, previously benefiting from the loose trading of gold, which is in line with the characteristics of the current interest rate cut cycle, which has already passed half the game.

4) Copper prices have continued to fall by nearly 5% since July, partly because the concentration of this round of interest rate cut trading is high and the early rush is obvious, leading to the fall of copper prices due to the rotation of short-term funds.

► There are contradictions in Trump's various claims, so at this stage, it is more reflected in more certain industries and structures, such as US technology leaders, new energy vehicles, crude oil, and Bitcoin.

1) US technology leaders have fallen significantly, mainly affected by Trump's policy of suppressing large technology leaders. In this round of interest rate cut trading, technology leader stocks with strong short-term profitability and abundant cash flow have a relative advantage, but the current position is too high, and the short-term fall is more obvious under the influence of Trump's policy, with MAAMNNG as the representative of technology leaders, falling nearly 5% last week.

2) New energy vehicles are also affected by policy, with Tesla as the representative of new energy vehicles, and stocks have fallen significantly recently, mainly affected by the policy expectation of Trump canceling new energy vehicle subsidies.

3) The decline in crude oil is mainly affected by Trump's policy of increasing crude oil supply, and the boost in interest rate cut trading is more biased towards the later stage.

4) Bitcoin has benefited from Trump's public support for cryptocurrencies and has risen by 16% since last week.

Behind the chaotic performance: the contradictions of Trump's policy and the differences with interest rate cut trading

The performance of assets at the same time reflects the reasons behind different trading logics because there are two major differences in the current market's main line, 1) Trump's policy itself has "contradictions", and its statements and policy claims have completely opposite effects, so the market has not traded Trump 2.0's policy expectations in a large scale; 2) There are differences between Trump's trading and interest rate cut trading, Trump's policies are generally inflationary, which restricts the space for monetary policy relaxation, and at the same time, they jointly affect the performance of crude oil and gold and other bulk commodities.Low Inflation vs. High Inflation: Both in the Republican Party platform and in Trump's exclusive interviews, it is clearly stated that they will "end inflation" and will increase oil drilling and de-escalate the Russia-Ukraine conflict to alleviate inflationary pressures. However, whether energy alone can achieve this method of inflation is questionable:

1) The resilience of this round of inflation mainly comes from demand rather than goods. The current resilience of U.S. inflation is more on the demand side. The reflexivity of financial conditions leads to insufficient tightening, and the long lag in the transmission from the monetary cycle to the credit cycle has constrained the slowdown of core inflation, such as rent and labor costs. According to the June inflation data, in the 3% year-on-year CPI, food and energy only contributed 0.37%, and in the -0.06% month-on-month, food and energy contributed -0.11%, while housing contributed 0.09%, and rent remains the main source of inflation resilience.

2) Most policies are inflationary. In Trump's policy mix, the imposition of tariffs, investment spending, domestic tax cuts, and immigration policies are all more inflationary, which may lead to a situation where inflation is difficult to continue to fall sharply after the election, contradicting his policy proposition of "controlling inflation."

Low Interest Rates vs. High Interest Rates: In an exclusive interview with Bloomberg, Trump summarized his economic agenda as "low interest rates and low taxes." The "low interest rates" Trump refers to may be more about short-term policy interest rates. In the interview, he mentioned "lowering inflation by reducing energy prices, which in turn can lower interest rates." However, the constraints on inflation mentioned above and the inflation tail in the fourth quarter actually limit the scope for the Federal Reserve to cut interest rates. The current economic fundamentals are not bad, and the relaxation of financial conditions after the interest rate cut will reactivate demand again, so there is no need for continuous and substantial interest rate cuts. Inflation risks will further suppress the scope of the Federal Reserve's interest rate cuts, leading to limited downward space for U.S. Treasury rates and a steeper yield curve.

Crude Oil Supply vs. Demand: Trump's policy advocacy emphasizes the determination to return to traditional energy and has stated that he will accelerate the issuance of oil exploration demands to increase domestic crude oil supply. However, policies that suppress new energy vehicles will drive the demand for traditional oil vehicles, and both the supply and demand sides will be affected by policies. On the other hand, the interest rate cut trade also has a pulling effect on the demand side of crude oil. After the interest rate cut, demand improves, and the reflation trade often pushes up oil prices.

Geopolitical Safe-Haven vs. Cycle Repair: Although gold has "rushed ahead" in this round of interest rate cut trade, there is still a trading space for gold after the interest rate cut trade begins, until it ends after one or two interest rate cuts. However, if Trump is elected, changes in trade policy and geopolitical situations may cause an increase in safe-haven sentiment, with gold shifting from an interest rate cut trade to a safe-haven trade, maintaining resilience.

The likely direction of Trump 2.0: Limited downward interest rate space, favorable to the cycle but technology is disturbed, commodities under short-term pressure, gold is neutral, and the dollar is strong without intervention.

Combining new clues of Trump's policy advocacy and the main lines of impact, we have sorted out the likely and more probable directions of Trump 2.0 trading as follows:

► U.S. Treasuries: Inflationary policies limit the downward interest rate space. If Trump is elected, his tariff policies, domestic tax cuts, and immigration policies are all more inflationary, which means that U.S. Treasury rates are unlikely to fall sharply and sustainably. The Federal Reserve may still cut interest rates in the third quarter, with a total reduction of about 100bp, but after the rate cut, long-end U.S. Treasuries will gradually bottom out. We judge the central axis of U.S. Treasuries to be 4%, fluctuating between 4.7% and 4.2% before the rate cut, with a wave of downward pressure after the rate cut, such as 3.7-3.8%, and then gradually rising. In terms of rhythm, the early interest rate cut trade will drive U.S. Treasury rates downward, and later U.S. Treasury rates may rise due to renewed bond issuance and economic data warming up.

► U.S. Stocks: Overall not pessimistic, but intervene after a short-term correction; technology leaders have industrial advantages, but they face more policy pressure compared to the cycle. Trump's tax cut policies may boost U.S. stock earnings, and sectors with higher current tax rates, such as energy, transportation, diversified finance, and banking, have greater flexibility. At the same time, the Republican Party's return to traditional energy policy advocacy will benefit the cyclical sector. In contrast, technology leaders may face "antitrust" policy and export restriction pressures, and the cancellation of electric vehicle subsidies will also suppress the performance of related industries, but the long-term development direction of AI still brings demand, which is its main support.► Gold: Maintain neutral, as both the interest rate cut and Trump's stimulus policies will put pressure on it, but it benefits from safe-haven sentiment. Similar to U.S. Treasuries, gold still has a trading opportunity before the interest rate cut, with our estimated fair value center at $2,500 per ounce, gradually ending after the rate cut is realized. If Trump is elected, his various stimulus policies will also be unfavorable for safe-haven assets. However, the tariff issues, as well as geopolitical uncertainties in places like Russia-Ukraine and the Israeli-Palestinian conflict that his presidency brings, will provide a certain configuration need for safe-haven assets, thus remaining neutral.

► U.S. Dollar: Both the interest rate cut and Trump's policies support a strong U.S. dollar, but whether there will be intervention to promote competitive devaluation is worth closely monitoring. Whether it's a brief interest rate cut followed by demand recovery or Trump's policies that are mostly favorable for growth and inflation, they also have a boosting effect on the U.S. dollar. After Trump's victory in November 2016, expectations quickly pushed the U.S. dollar and U.S. Treasuries higher. However, the biggest variable facing the U.S. dollar is the "weak dollar" policy proposed by Trump and his team this time, promoting a weaker dollar to "boost" exports, and artificial administrative intervention to weaken the dollar may push up commodity prices and import costs, which will also affect global trade.

► Commodities: Short-term supply pressure, the later stage of the interest rate cut and policy stimulus may bring a boost. For oil, accelerating the issuance of exploration permits for oil and natural gas may increase U.S. oil production, and the increase in supply may temporarily suppress oil prices. The suppression policy for electric vehicles may also be unfavorable for the performance of copper, but it may encourage an increase in demand for traditional fuel vehicles, which could, in turn, boost demand. In addition, Trump's infrastructure and manufacturing investment policies may lead to a recovery in copper demand.

► Bitcoin: Benefits from policy support. Unlike the Biden administration's previous suppressive attitude towards cryptocurrencies, both Trump and Vance have clearly expressed their support for cryptocurrencies.