Market Update – 6th November 2024.

6th November 2024

As the U.S. election nears its conclusion, it’s looking increasingly likely that America could see a return of Donald Trump to presidency. With the results still coming in, Trump has won key battleground states and currently holds a decisive lead in those that are remaining to be announced.

Late Tuesday evening, as votes continued to roll in, financial markets responded positively. U.S. stocks surged, with S&P 500 futures rising over 1%, and the dollar making its largest intraday gain against other currencies since 2020. Treasury yields also climbed, reflecting investor concerns that Trump’s policies might lead to increased spending and inflation.

The financial markets’ initial response signals optimism, with investors confident yet mindful of potential policy impacts and inflationary pressures in the coming months. Investors expect Trump’s administration – which is notoriously ‘pro-business’ – to focus on tax cuts and deregulation—policies likely to largely benefit Corporate America and domestic markets as well as net importers.

On Tuesday, China’s Caixin services PMI rose to 52 for October, surpassing expectations and improving on September’s performance. The manufacturing PMI also climbed to 50.3, signalling expansion in both sectors (given that PMI readings above 50 indicate growth). The data suggests that China’s economy may be gaining momentum, with supply and demand potentially benefiting from this year’s extensive stimulus measures that have been announced by policymakers.

Chinese markets responded positively to the news, with the Hang Seng index rising 0.3%, while most other Asian markets moved cautiously in anticipation of the U.S. election results. Market participants are now closely watching the ongoing session of China’s National People’s Congress Standing Committee, which began on Monday, for signs of additional fiscal support.

In the UK, markets are broadly anticipating another rate cut from the Bank of England in their upcoming meeting on Thursday, with forecasts pointing to a 25-basis-point reduction that would bring the key lending rate down to 4.75%. This outlook comes despite the recent announcement made in the Autumn budget that there would be an increase in government borrowing, which raised concerns about potential upward pressure on inflation. The proposed increase in public spending led to declines in UK government bond prices, briefly pushing the yield on the 10-year gilt above 4.5% before it later eased.

However, recent data on wages and inflation suggests a softening trend that could support the case for a rate cut. Staff pay, excluding bonuses, rose by 4.9% in the three months to August compared to a year earlier, a slight decrease from 5.1% growth in the previous three-month period ending in July.

In Ireland, Prime Minister Simon Harris announced plans to call a parliamentary election later this week. Harris is expected to dissolve parliament either on Thursday, ahead of the European leaders’ summit in Budapest, or upon his return on Friday.

Later this week, the Federal Reserve is set to announce its latest interest rate decision on Thursday, with analysts widely expecting a further 25-basis-point cut. With inflation showing signs of cooling, the Fed’s focus has shifted toward safeguarding the labour market. Recent jobs data revealed a modest addition of 12,000 workers to payrolls in October, falling short of economists’ expectations. We also have U.S. consumer sentiment and Chinese CPI.

Nicola Tune, Portfolio Specialist