Trump’s Comeback Stirs Middle Eastern Markets and Policy Concerns

By Srijith K N

With former President Donald Trump’s 2024 victory over Kamala Harris, markets globally have already begun to react to the anticipation of “Trump 2.0” policies. Trump’s expected return to familiar strategies—emphasizing tax cuts, deregulation, and protectionist trade—promises to reshape U.S. economic policies and spark complex reactions across Middle Eastern markets. The region, heavily influenced by U.S. financial and trade policies, now faces a mix of challenges and opportunities, especially in energy, defence, and investment landscapes.

Gold Drops as Dollar Rallies Post-Trump Victory

Gold prices (XAU/USD) have taken a hit following Donald Trump’s self-announced victory in the 2024 U.S. presidential race, largely due to the U.S. dollar’s rally. According to Mohamed Hashad, Chief Market Strategist, Noor Capital “the dollar index surged to 105.22 from 103.42,” as financial markets responded positively to Trump’s business-friendly policies, which include “increased tariffs and tax breaks.” These policies have traditionally bolstered the dollar, creating an inverse relationship with gold. Hashad explained that “a stronger dollar reduces demand for gold as a safe-haven asset,” which led to a decline in gold futures from $2,753 to $2,675 per ounce. The Republican victory in the Senate, alongside expectations of an investment-friendly economic approach, has only strengthened the dollar further, continuing to apply downward pressure on gold prices.

The “Trump Trade” and Sector-Specific Reactions

U.S. stock futures have rallied, reflecting investor confidence in Trump’s expected economic agenda. John Hardy, Chief Macro Strategist at Saxo Bank, explains, “The markets were already positioning for a ‘Trump trade,’ with U.S. equities, especially small-cap stocks, gaining in anticipation of tax cuts.” Hardy adds that small-cap stocks are particularly sensitive to fiscal stimulus, which investors expect to see more of if Trump enacts a robust pro-business platform.

The response in Treasury yields, however, signals concern over inflationary pressures tied to Trump’s anticipated fiscal spending. “Rising U.S. Treasury yields highlight worries about inflation, especially if Republicans gain legislative control,” Hardy says. “This could push yields even higher, which would have ripple effects on borrowing costs in emerging markets, including the Middle East.”

Oil Continues to Rise Following Trump’s Win

Oil prices continue their upward trajectory following Donald Trump’s 2024 victory, driven by shifts in the U.S. political landscape, tightening American oil inventories, and heightened risk appetite in global markets. According to Mohamed Hashad from Noor Capital, “a boost in risk appetite” and “a drop in U.S. crude and gasoline inventories” are contributing to oil’s strong rally, indicating a potential supply squeeze. U.S. government data shows oil inventories rose by just 515,000 barrels for the week ending October 25, significantly lower than forecasts, while the American Petroleum Institute reported crude stockpiles down by 573,000 barrels. Hashad adds that Trump’s economic policies, focusing on “increased tariffs and more tax breaks,” are pro-business, generating optimism that lifts demand for risk assets like oil.

 The U.S. economy’s positive indicators, including progress toward a “soft landing” and a stabilized inflation rate, have further boosted market confidence. Consequently, oil futures climbed to $72.20 per barrel, from the previous close of $71.81. This rally, amid Middle Eastern tensions and steady demand, underscores oil’s key position among risk assets in global financial markets.

Defense Spending and Regional Trade Impacts

Defense stocks have already risen, and Hardy notes that Middle Eastern countries may face increased pressure to bolster their own defense spending. “European defense firms are seeing strong gains, and any reassessment of U.S. commitments to NATO could result in Gulf countries ramping up defense investments,” he says. This trend would particularly favor U.S. defense contractors with established relationships in the region.

On trade, Hashad highlights that a new wave of tariffs, especially those targeting China, could have a significant effect on Middle Eastern economies with close ties to Asia. “The Trump administration’s trade policies, if as aggressive as before, could disrupt supply chains and impact prices for electronics, machinery, and other imports here in the Middle East,” he says.

Bond Market Repercussions and Financial Sector Outlook

As U.S. Treasury yields continue to rise, Hardy warns of the possible spillover effects for emerging markets. “Higher U.S. yields often lead to increased borrowing costs for developing economies, which could put fiscal strain on some Middle Eastern countries. However, this also creates investment opportunities for sovereign wealth funds from the Gulf looking to diversify,” he explains.

Hashad adds that inflation risks tied to Trump’s economic policies will be closely watched. “Middle Eastern governments with high exposure to dollar-denominated debt or significant fiscal vulnerabilities will need to brace for possible increases in inflation and borrowing costs,” he says.

Geopolitical Ramifications for the Region

The Middle East has long been influenced by U.S. foreign policy, and Trump’s anticipated alliances and stances, particularly toward Iran, may have direct consequences. Hashad observes, “If Trump’s policies reflect his previous hardline stance on Iran, regional stability could be impacted, which would, in turn, influence oil prices and investment in infrastructure.”

Hardy notes that the strategic relationships built during Trump’s first term might see renewed emphasis. “For Gulf allies, Trump’s return offers both reassurance and risk. Stronger ties may boost investment opportunities, but heightened geopolitical tensions would likely increase oil prices and further military commitments,” he explains.

What Lies Ahead

The Middle East’s economic response will depend largely on whether Republicans secure legislative control, allowing Trump to pursue his fiscal agenda. “If Trump can pass his planned policies, we’ll see intensified market shifts,” Hardy remarks. “In that case, inflationary concerns would push yields higher and lead to capital shifts affecting both U.S. and global markets.”

Hashad concludes that Middle Eastern markets should prepare for a landscape that balances growth with caution. “The Trump administration brings familiar yet unpredictable policy shifts. Regional economies will need to monitor U.S. trade, fiscal, and monetary policies closely to navigate potential volatility,” he advises.

With Trump’s second act on the world stage, Middle Eastern markets are bracing for both opportunities and challenges in a shifting geopolitical landscape. For now, the region watches as “Trump 2.0” prepares to make its mark.