Market is assigning a higher probability of a Trump election win, says Societe Generale's Rajappa

Now let's talk market, but mostly rates right now. Joining us now, Subhadra Rajapath, Societe Generale, head of US rate strategy. So do the markets assume Donald Trump's going to be president at this point? That's kind of the point you're making in the in the notes. That's that's what's causing the backup in rates. Yeah. The price action after Thursday was definitely where the market is looking or assigning at least a higher probability of a Trump win. And if you go back to 2016, the playbook says that 10 year olds rose by about 80 basis points between November to mid-december and 10 year break. Evens or inflation expectations rose by nearly 40 basis points because the market started to look at the possibility of tariffs as well as, you know, tax cuts that could increase deficits. This time around. I would say that, you know, given the fact that we're already in a high inflation regime, really the focus is on debt and deficits for the next several years. Is that why it's different this time? Because that was the playbook in 2016 and when he exited the White House, I think inflation was 1.4%. So you did see tax cuts, you did see tariffs, you didn't see 40 year highs in inflation till 14 months after Joe Biden took office. So is that in your view that's totally pandemic related supply chain? Or was some of the excess stimulus and trillions of dollars maybe stimulus so we didn't need it. Was that responsible or or a bit of both? So there's definitely a combination of factors that led to that rise in inflation. I mean, let's remember a lot of that pandemic spending came before President Biden was elected. And then we had a little bit more with, with with Biden getting elected. It was goods inflation because of supply chain disruptions. But recently it's been services side inflation. Rents have been sticky and high and inflation is starting to slowly come down. I think the progress we've made in the in the last 12 to 24 months has been quite, you know, meaningful. And that's part of the reason why the Fed's looking towards easing policy going forward. Really what the Fed wants to see is that disinflationary trend continue. They want to see core PCE at least get to around 2 1/2% before they start thinking about about rate cuts. So there's still more work to be done. So we're kind of watching the data to see how the the Fed will act on policy. Given that there is 33 trillion, we've already done that. And there's no, no relief insight with either candidate, probably. Mm, hmm. Why would you think inflation would continue to moderate? It seems like it. It seems like yields are going to be stick even if Fed does cut. They're going to be at least a steeper yield curve or they're going to stay high for longer. Yeah. So the general level of yields are probably going to be higher for longer. And that's the debt and deficit story. The inflation story comes in if we say have additional tariffs or other sort of stimulative efforts, that's probably going to cause an increase in services, tax cuts or, or more of what we saw with the Inflation Reduction Act, the, I mean, take your pick. There was one before then there was just $7 trillion or something with the spending. What you're, you're absolutely right in pointing out that both are, are somewhat involved. But sometimes tax cuts can actually, I mean, we do corporations pay more in taxes now than they did before the tax cuts. Well, Trump, President Trump is thinking about bringing down total level is, is hard. Yeah. Down down to 20% to 20%. So that's not a meaningful change really. The the question for inflation is one of tariffs. I mean, the proposals that are currently in place from the Trump administration is that they would increase tariffs by 60% on China and 10% on all imports. No one believes that. OK, but that. But what I'm saying is that we don't really have much by way of data. But then I mean, I mean concrete information I should say from the Trump administration, but that's kind of what the markets looking towards is trying to kind of suss out what that what those levels would be and what the impact would be if those proposals are actually passed. So where do?