ACM Update 12-11-24
In the political sphere, Trump triumphed in the US and the Dollar strengthened. Economically, we saw the Federal Reserve and Bank of England both opt to cut interest rates by 0.25% as widely expected.
A quiet start to the new week as many countries celebrate Remembrance Day/Veterans Day, before we receive news on US Inflation & UK GDP. These arrive on Wednesday and Friday respectively.
A busy last couple of weeks are now behind us with some major events having taken place. The headliner being that Donald Trump will be heading back to the White House in January. He defeated Kamala Harris by 312 seats to 227 in the end with 50.4% of the vote (74.8m to 71.2m votes overall). A closely fought race turned out to be quite so when it came to polling day.
The Trump victory provided USD with some strength, moving around two cents against GBP down to as low as 1.2840 in the early hours of last Wednesday. Will we see a resurgent Dollar ongoing, or was this just a knee-jerk reaction to the results?
His Republican party now also holds a majority in the Senate, key to controlling how much of Trump’s proposed policies become law. On the Congress side of things, control still remains unclear.
Less than 48 hours after the Presidential vote, the Federal Reserve held their latest interest rate meeting. This saw the Fed cut interest rates again by 0.25% and Jerome Powell “feeling good” about the state of the economy. The move suggests a more cautious pattern to rate cuts ongoing.
Powell’s comments come despite the October jobs figure being the lowest Non-Farm Payrolls figure since December 2020. Just 12,000 jobs were added during that period, which could be attributed to a wait and see approach pre-election, or something greater. Jerome Powell also referenced that Trump can’t legally fire him from his post, despite threats from the President-elect to do so.
The Dollar’s gains versus GBP last week can be seen in the chart below:
Over in the UK, Andrew Bailey and his colleagues also opted to cut interest rates last week by 0.25%. The Bank of England voted 8-1 in favour of the move, with (predictably) just Catherine Mann voting to keep rates on hold. Progress on inflation and the lack of growth in the economy are both factors in the move.
However, there was some support offered to GBP, with comments from Bailey that rates should not be cut “too quickly or by too much”. There were also concerns regarding inflation bouncing back up, referencing changes made in the Autumn Budget the week before. Policymaker Huw Pill reaffirmed though that the Bank should look past this “short term inflationary hit”, when determining ongoing policy.
With one remaining interest rate meeting in mid-December, the general consensus currently is for interest rates to be held to see out 2024.
Looking at the growth picture, there could be bad news for the UK if Trump does implement his suggested 20% tariff on US imports. A poll last week suggested such a move could cause a drop of 2.6% in UK exports, creating an overall hit to UK GDP of 0.8% (around £22bn). We have the latest GDP figure out this week on Friday.
The Euro bore the brunt of the Trump victory last week, again due to exposure to tariffs ongoing. The single currency weakened by over 2% against the Dollar, and has been moving negatively versus GBP also. Aside from that, the Services PMIs for the bloc were all better than forecast.
The continent is likely to be on the rough end of the election outcome for now at least. With a press conference later this week from President Lagarde, it will be interesting to hear her comments on the topic.
GBP briefly pushed up to a high dating back to early 2022, as the Euro suffers.
Moves on GBP-EUR can be seen in the chart below:
The week ahead:
Monday – Bank Holidays (US, Canada, France, Belgium)
Tuesday – UK Unemployment/Claimant Count/Average Earnings (07:00), BoE Pill speech (09:00), German & EU ZEW Economic Sentiment (10:00), Fed Waller speech (15:00), Fed Harker speech (22:00)
Wednesday – BoE Mann speech (09:45), US CPI inflation exp 2.4% (13:30), RBA Bullock speech (23:00)
Thursday – EU Flash GDP (10:00), ECB Meeting Minutes (12:30), BoE Mann speech (13:00), US PPI inflation (13:30), ECB Lagarde speech (19:00), Fed Powell speech (20:00), BoE Bailey speech (21:00)
Friday – UK GDP exp 0.2% (07:00), US Retail Sales (13:30)
Much of the focus this week will be on Wednesday’s US inflation reading. This is forecast to show a slight bounce back up in CPI inflation to 2.6%. Such a move has been mentioned by Fed officials previously, but could well mean more caution on their part for future rate cuts.
Thursday evening meanwhile sees speeches from the heads of each of the “big three” central banks. Whilst Christine Lagarde, Jerome Powell and Andrew Bailey are all speaking at separate events, the speeches run back-to-back. Any narrative with regards to ongoing policies will be important, thus we could see some market movement.
UK GDP closes out the week on Friday morning, expected to show a modest growth of 0.2% for September.
Markets are still digesting the ramifications of the Trump victory, so we can expect to see this still causing movement. Will this victory see a stronger Dollar due to his proposed economic policies, or does the incoming President want to see a weaker Dollar as he says, to make US exports cheaper? Only time will tell.
For any looming requirements, make sure to reach out to the team to discuss.
Have a great week.
