Investors move to risk-off mode ahead of Donald Trump's inauguration

Jasper Jolly
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President-Elect Donald Trump Holds Press Conference In New York
Trump has said he will spend $1 trillion on infrastructure (Source: Getty)

Investors around the world have moved into risk-off mode ahead of the inauguration of Donald Trump as US President, with money flowing towards safe-haven gold funds over the last week.

Flows towards gold funds hit a 10-week high, while dividend equity funds have seen outflows for the past month, according to data provider EPFR. Indeed, flows to precious metals, traditionally bought as safe haven investments, have hit a five-month high.

Bond funds saw inflows of $4.4bn over the week up to 18 January, with the movement dominated by US bonds.

Read more: Will Trump's election burst the bond bull run's bubble?

On the other hand money market funds, which aim to be close to cash-equivalent, saw outflows of $28.4bn.

The dollar has also suffered over the past week, after Trump said he would prefer it to be weaker in an interview. The US dollar index against a basket of currencies is currently trading at 101.4, after peaking at 103.820 in the wake of the election result.

Meanwhile redemptions from US equity funds hit their highest point since early November when Trump was elected. US stock markets have also dipped in the past week, as investors pause ahead of the new administration assuming office.

The election of Trump as US President sent a shockwave through global markets, but they quickly recovered as money poured from safer assets such as bonds into higher-yielding but riskier stock markets.

US markets rose to record highs, with the Dow Jones Industrial Average index almost breaking its symbolic 20,000 mark, briefly rising above 19,999 points. The S&P 500 index, which is a much more accurate indicator of the state of US companies, also broken record highs.

However, the rush to equities has slowed somewhat in recent weeks, with the Dow stalling.It has since fallen to close at 19,732 points on Thursday. The S&P 500 is also slightly down over the last fortnight before US markets open on the day of inauguration.

The boom in stocks was caused by investors parsing Trump’s agenda as stridently pro-growth, with promises of higher inflation under a de facto fiscal stimulus. Trump has promised swingeing tax cuts allied with an unfunded trillion-dollar boost to US infrastructure spending.

However, investors have backed off this narrative slightly, after Trump last week failed to mention specific economic policies during his first press conference for 169 days.

The lack of detail has also led investors to question whether the Federal Reserve will tighten monetary policy at the same rate as would be expected if Trump’s infrastructure boost disappoints.

Lower spending than expected would weigh on inflation, with the Federal Reserve then coming under less pressure to raise interest rates.

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