This week definitely feels like the “morning after the night before” as the world and global markets digest and decompress after Donald Trump’s historic US election victory. Ultimately, the US economy could see a near-term boost from improved confidence, looming pro-growth policy measures and a lighter regulatory environment. Indeed, many on Wall Street are revising up their 2025 growth outlooks. That said, potential tariffs and a possible bump in inflation could, all else equal, lead to higher interest rates than most would otherwise predict.
Interestingly, the Treasury market slipped back to levels seen pre-election, with calming words from Fed Chair Powell as well as a realisation that inflationary tariffs may not actually be seen for some time. Amplified electioneering may also be reined in. But equities are seriously liking the outcome, with US stocks enjoying their best week in a year and “animal spirits” seemingly very strong. A possible overheating in the economy could be a medium-term risk, while the relief rally might just run its course soon.
This week’s US CPI numbers will bring attention once again to price pressures, with a hot report highlighting the risks to the macro picture, aside from any Trump policies. Powell gave little guidance on how fast and far rates will fall at last week’s FOMC meeting. Retail sales will also guide the greenback, as the US consumer has been a key driver of the economy this year. The dollar will eye both reports in a very bullish position, having not fallen for six straight weeks and having recently eased overbought conditions.
UK data will be watched after the odds for another BoE rate cut took a hit with the budget and on the global move in bond markets after the US election. Wage growth is cooling, though this is partly down to the base effects story. The Bank of England turned a bit more hawkish at last Thursday’s meeting, as it revised its inflation and growth forecasts significantly higher. Cable is clinging on to support around 1.2862. That is the halfway point of the April to September move higher.