Markets in a Minute 11th November 2024

ONCE MORE WITH FEELING

Last week, asset markets in the US and Europe diverged after Donald Trump was elected president, the Republicans kept control of the Senate and it looked likely they would also get majority in the House of Representatives, resulting in a so-called 'clean sweep'. See the video in the link below for our reaction the morning after the election.
US equity markets rallied to new all-time highs amid more certainty around policy and expectations of lower taxes and deregulation. However, equities in Europe fell due to the potential growth drag from expected US tariffs. This also helped push European bond yields lower, though the collapse of the German governing coalition countered this.
This week, focus is set to remain on whether the Republicans secure a clean sweep and the expected key appointments and policies under the incoming administration, as well as developments around the German election. On the data front, the key releases are likely to be consumer prices (Wednesday) and retail sales (Friday) in the US and industrial production (Wednesday) in the Eurozone.
KEY DATA AND EVENTS

The US election gave Donald Trump victory, while the Republicans maintained control of the Senate. Votes are still being counted to determine which party controls the House of Representatives, but it appears likely that the Republicans will also win a majority here, which would give the party a clean sweep and the ability to implement its agenda with minimal opposition.

The Fed's meeting took a back seat last week, with the Fed funds rate cut by 25bps to a range of 4.50-4.75%, as expected. Chair Powell stated that the election would have no short term impact on policy decisions.

In Germany, the coalition government collapsed on Wednesday and Chancellor Olaf Scholz said he would look to hold a confidence vote in January that would allow for elections in March. On Friday, Scholz suggested the confidence vote could be held earlier amid pressure from opposition parties in order to allow for a January election.

EQUITY MARKETS

Last week, there was a marked divergence in US and European stocks. The S&P 500 rallied strongly to a new all-time high and was up by 4.7%, supported by increased certainty around policy due to the decisive election results. In addition, implementation of policies such as lower taxes and deregulation were viewed as likely given the expected Republican clean sweep.

The Euro Stoxx 600 was down by 0.8%, with the potential growth drag from proposed tariffs under a Trump presidency dampening sentiment.

BOND MARKETS

Bond yields fell (bond prices rise as bond yields fall) last week. In the US, yields rose initially the day after the election as policies such as increased government spending, tax cuts and tariffs were expected to push up inflation, which may mean rates need to stay higher to keep inflation under control. Howver, Chair Powell suggested in the Fed press conference that rates would still be cut in the coming months and this led the 10-year US Treasury yield to fall by 8bps to 4.30% last week.

Growth concerns in the Eurozone amid likely tariffs on exports suggested that interest rates may need to be cut to support activity in the region. However, the potential for fiscal expansion under a new German government pushed German bund yields higher. Overall, the 10-year bund yield was down by 3bps to 2.36% for the week.

WATCH POINTS
  • Tue 12th US - NFIB small business survey, senior loan officer survey • Germany - ZEW business survey
  • Wed 13th US - Consumer prices • Eurozone - Industrial production
  • Thu 14th US - Initial jobless claims • Eurozone - ECB meeting minutes
  • Fri 15th US - Retail sales, industrial production

This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.