Ear to the Ground

08 November 2024

There has been a lot for markets to digest over the last few trading sessions.  First up we had the US election.  Very few were predicting the scale by which President Trump would secure his next stint within the White House.  The proposals which Trump has made throughout his campaign have been very much ‘pro-growth’ and that is how the markets have continued to interpret them.  This has been a positive for the stock market, with broad gains seen across many US indices.  Smaller companies were the most favoured, with the Russell 2000 performing strongly.  The Nasdaq and S&P 500, however, were hot on its heels.  

Whilst being pro-growth, policies muted could also prove to be inflationary.  The imposition of tariffs on imports, for example, could mean higher prices will be seen.  At the same time, we have no real handle on the ever growing debt situation in the US.  Treasury bond yields drifted higher as a consequence, but perhaps not as aggressively as some commentators thought given what has been heard so far.

Despite the uncertainty, the US Federal Reserve pressed ahead with a much expected interest rate cut, lowering by 0.25% to 4.5%-4.75%.  Following the decision Chair Powell reiterated the central bank was not on any pre-set course and that future rate decisions will be determined by a careful assessment of the data available at the time, along with an assessment of the balance of risks.  In his accompanying statement he also took the opportunity to suggest that the election result will have no impact on their policy short term.  It would appear, therefore, that we could see a further rate cut in December, if they remain in line with their dot plot forecast.

Also in cutting mode were the Bank of England, who reduced the base rate by 0.25% to 4.75%.  This was again very much in line with expectations.  Eight of the nine members of the rate setting committee voted in favour of the cut, with the outlier voting to hold at 5%.  With consumer price inflation at 1.7%, even though it is expected to push higher again moving forward, there was clearly scope for the central bank to act. 

Also in a cutting frame of mind was the Swedish Riksbank, who reduced by a larger 0.5%, therefore falling to 2.75%.  This was again the consensus, with inflation below the 2% target here also.  Growth is also weak, with a contraction of 0.1% seen in the economy in the third quarter.