Last week was a particularly busy one on the macro front with the small matter of the US presidential election and two key central bank policy meetings all taking place. Former and the soon to be new president Donald Trump completed a remarkable return to the White House after he defeated Democratic Party nominee Kamala Harris. The United States Senate was also secured for the Republicans and whilst the makeup of the House of Representatives had not been confirmed at the time of writing, the direction of travel so far suggests a clean sweep for the Grand Old Party (GOP).

The election result proved to be a turbocharge for US markets with the prospect of deregulation and a stronger economy underpinning fresh highs amongst the major indices (S&P weekly gain +4.7% in USD). Small and mid-sized companies also rallied strongly, as did the cryptocurrency market given the incoming president’s demonstrable support throughout his election campaign. Bond markets did not join in the party however with the potential of huge fiscal stimulus and a complete disregard for the deficit prompting traders to sell treasuries; the US 10-year jumped to 4.44%, although it did retreat over the remainder of the week. The dollar strengthened sharply, reflecting possible higher interest rates in the future although the Federal Reserve (Fed) did cut its key lending rate by 25bps to a range of 4.50-4.75%[1]. Governor Jerome Powell noted that in the near term, the election will not have any influence on the Bank’s policy decisions although this is likely to change as more announcements from the new regime are made. 

The Bank of England (BoE) also voted through a 25bps rate cut at last week’s Monetary Policy Committee (MPC) meeting, a second rate cut this year[2]. However, Governor Andrew Bailey did acknowledge that the prior week’s Labour budget will result in higher inflation and that will have an influence over future rate decisions. The FTSE 100 and FTSE 250, both of which had been volatile due to the combination of the US election and the two central bank policy meetings concluded the week -1.3% and +0.1% respectively. Gilt yields, which had been rising due to the potential and then confirmed implications of the budget concluded the week broadly flat at 4.44%. Elsewhere, Japanese equities advanced with the Nikkei 225 adding +3.8% in local currency terms with investor sentiment boosted by the Trump election and Fed rate cut. Chinese indices also made strong gains, the Shanghai Composite jumping by +5.5% (local currency) in anticipation of a fresh stimulus announcement from Beijing. Additional support was revealed on Friday, including a local government debt refinancing programme and an increase in the local government debt ceiling.

Week Ahead

Source: Refinitiv Workspace, 11/11/24
 

[1] Federal Reserve – FOMC Meeting Press Release 07/11/2024

[2] Bank of England – MPC Summary & Minutes 07/11/2024

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