Interest rate cut cycle to pause if Trump wins US election 2024: ICICI Sec

US election results: The brokerage believes Donald Trump's protectionist policies such as higher tariffs, and policies against immigration, could be a curve ball for global trade

US election results: The US election results 2024 are trickling in, and early trends show former President Donald Trump leading on 211 seats. His Democratic rival Kamala Harris, meanwhile, is trailing with 145 seats. 

Donald Trump's win, however, may pause interest rate cycle globally, cautioned ICICI Securities on Wednesday. 

"The Republican method could set in motion higher tariffs and tax cuts – usher in fiscal deficit pressure and become a vehicle for inflationary tendencies. As a domino effect, the US Dollar could weaken – akin to Trump's previous Presidency, when the Dollar index fell and fiscal deficit rose," the domestic brokerage noted in its report. 

As per the brokerage's analysis, the Dollar index fell from over 100 levels to around 90 levels between October 2016 and October 20. It rose back to over 100 levels by October 2024 -- a period of Joe Biden's presidency. 

The higher the US Dollar index, the firmer the currency is in value in global trade, leading to higher dollar inflows in the US. 

Further, the US' fiscal deficit as a percent of gross domestic product (GDP) rose from 3.1 per cent to 4.6 per cent between FY16 to FY19. 

The brokerage believes Donald Trump's protectionist policies such as higher tariffs, and policies against immigration, could be a curve ball for global trade, which is already reeling under the Red Sea crisis and container shortages. 

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ICICI Securities expects export-oriented themes to suffer from protectionism and weaker US Dollar. Conversely, domestic investment demand related themes and financials could benefit from a weak US Dollar (lower import costs) and elevated interest rates, respectively. 

"Our strategists believe Trump's proposed policies could lead to higher interest rates and slower global growth. Near-term, however, reduction in corporate tax rate (from 21 per cent to 15 per cent) could ease budget pressures for end clients, driving better demand. The Tax Foundation, a non-partisan think-tank on US tax policy, estimates Trump's tax policies could improve US' long-term GDP," said those at JM Financial Services.