The latest economic news and market highlights from the UK, US and Asia.
Key takeaways:
🏆 Trump returns with a red wave – US equities saw the biggest post-election bounce in history after Donald Trump’s election victory. The Republicans also gained control of the Senate and look set to retain a majority in the House, though it’ll take some time for all the results to come through.
✂️ US Fed cuts again – US interest rates fell to 4.5%-4.75% - matching expectations. Chair Powell left the door open for another cut in December, but markets anticipate a less straightforward path in 2025 due to fiscal policy concerns.
⚠️ UK rates fall to 4.75% – The Bank of England cut interest rates again, with a caution that terminal rates may need to be 0.5-0.75% higher to offset any inflationary impact of the Budget.
📊 Softer US jobs market – Continuing unemployment claims rose to 1.89M, slightly above expectations.
👋 Auf Wiedersehen, Scholz – German Chancellor Olaf Scholz looks set to depart after the collapse of his ruling coalition, which fell apart after finance minister, Christian Lindner, was fired.
What does that mean for you and your clients?
During his last term, President Trump’s tweets often had a measurable short-term impact across a range of markets. If his second term is anything like his first, this could create opportunities for active management to capitalize on volatility.
The initial impact has already ripped through markets this week. US equities and Bitcoin reached new heights, and the 10-year Treasury yield surged 0.16% on Wednesday. On the one hand, investors have reset their economic expectations higher. On the other hand, they now expect inflation to remain elevated as a consequence of Trump’s proposed policies.
Concerns over fiscal sustainability are putting a premium on government debt, both at home and abroad. In the US, tax cuts are anticipated to expand the nation’s debt over Trump’s term. Market concerns about the inflationary impact of the UK budget have increased borrowing costs in the week since, wiping out Chancellor Reeves' fiscal headroom.
On the surface this backdrop could be seen as positive for equities and more challenging for bonds. However, as always, it’s the change in expectations that impacts investor returns. The benefit of diversification is that it gives investors protection against divergent outcomes - with last week's events a clear reminder of how paths can change.
Chart of the week - US Equity Earnings and Valuation
Source: Capital IQ, S&P, FactSet, Bloomberg. Data from 31st October 2024.
Why’s this worth sharing?
The chart highlights the broad range of opportunities across US equities, beyond the S&P 500.
Whilst the return on equity (ROE) and earnings growth remains attractive for the headline index, midcaps and small caps also offer compelling returns at much cheaper forward price-to-earnings valuations.
Although a higher for longer interest rate regime would be a relatively stronger headwind for smaller companies, this could be more than offset by favourable domestic policies enacted as a component of Trump’s “America First” ideology.
The Markets
The Bald Eagle soars: American stocks surged highest this week, with the S&P 500 approaching the 6,000 level. Bank stocks and crypto markets benefitted from anticipated deregulation, whilst Tesla rocketed by as much as 15% due to Elon Musk’s association with Trump’s campaign.
Muted FTSE: It was a quiet week for UK stocks, with traders cautious over the possibility of tariffs under a Trump presidency. However, some US exporters, such as Rolls Royce, saw gains due to the expected boost to the US economy.
Trump trade tremors hit Japan: Financial stocks rose with expectations of tax cuts and higher for longer interest rates. Trump's victory was less positive for semi-conductor related companies in Japan, which tumbled over fears of tougher trade policies. Strong corporate earnings and share buybacks boosted the broader market.
Toil and trouble for oil: Crude prices ended higher after a volatile week. Investors speculated about the outlook under a Trump administration, who's keen to support domestic production and curb the flow from unfriendly regimes.
Gold rebounds: After a sharp drop following the US election result, gold returned to strength following the US rate cut and a weakening of the dollar.
| ‎ | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | -0.28% | 8.86% |
| FTSE 250 | 0.80% | 7.83% |
| S&P 500 | 3.95% | 23.80% |
| NASDAQ | 4.68% | 23.81% |
| Hang Seng | 2.02% | 26.42% |
| Nikkei 225 | 3.17% | 6.37% |
| Brent Crude | 3.14% | -3.90% |
| Gold Spot | 1.24% | 30.13% |
| UK 10yr Gilt yield | +6bps | +96bps |
| US 10yr Treasury yield | -6bps | +46bps |
Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close Thursday 7th November 2024.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
