Chapter Two

Economic

Central Bank

Summary:

In summary, no one knows quite which foot to dance on. All eyes are on Powell and Bailey to help chart a roadmap.

The 2024 US election delivered a decisive victory for Donald Trump, with Republicans positioned to gain control of both houses of Congress.

The S&P500 jumped 2.5% to a fresh record and recorded its best post-election gain. The energy stocks surged nearly 4%. Nasdaq 100 advanced 2.74%, to a fresh record high, as well. Tesla soared almost 15% as Technoking Elon Musk’s heavy campaigning for Donald Trump now leaves him with super-close connections to the White House. Then, the Dow Jones surged more than 3.5% to a fresh record as well, as bank stocks rallied hard on Trump’s promise of deregulation. Invesco’s KBW Bank ETF, for example, jumped more than 10%. Bitcoin, of course, rallied to a fresh record high, and the small caps gained nearly 6% on hope that Trump’s protectionist stance will help their business.

In the FX, the US dollar soared to the highest levels since summer. Gold dived to its 50-DMA on relief that the election result was clear. And the USDCHF received a greenlight to step into the medium-term bullish consolidation zone.

As such, the Trump trade went according to the plan. US equities rallied, banks and small caps led gains, the US dollar gained, as the US yields rose on anticipation of further ballooning of the national debt. Everything that has to do with green, alternative, clean energy lost.

Beyond the borders

I was writing yesterday, before the market open, that the DAX and Eurostoxx futures were in the negative on fear that Trump would hit the European companies with new tariffs. Well, they turned positive at the open on hope that Trump presidency would call for a swift dovish response from the European Central Bank (ECB) to counter the shock. But gains remained short-lived and the European indices closed the session in the negative.

On top, Olaf Scholz called for a snap election in Germany as his three-way coalition collapsed under the weight of economic difficulties European carmakers faced a tough day, pressured by fears of higher tariffs.

Among the European indices, the Swiss SMI and FTSE 100 ended with relatively small losses – the SMI because it’s defensive by nature, and the FTSE 100 because the US dollar’s surge gave a boost to the FTSE 100 companies that get a clear majority of their revenues from abroad. But Trump policies are pro-US growth and anti-global growth. Therefore, the SMI is a good option for investors seeking defensive names. But Trump’s medium-term impact on mining companies’ revenues will not necessarily be positive. Copper futures – a gauge of global growth – dived more than 5% as a reaction to Trump win.

Trumpflation

For the US, it’s clear: pro-growth policies, tax cuts, tariffs point at higher inflation in the US. The Federal Reserve (Fed) is expected to announce a 25bp cut today, but the policy beyond today’s decision must be readjusted accordingly. The expectation, so far, was that the Fed would cut today by 25bp, and deliver another 25bp cut in December, and a full point cut next year. Now, the December cut is on a slippery ground and the Fed should not consider more than 2-3 rate cuts next year. That’s – at least – the policy response that you would reasonably expect from a central bank as an economist.

Elsewhere, opinions diverge. Some believe that the US will export its Trumpflation – if nothing by a stronger US dollar, but others argue that cheap Chinese goods – heavily taxed in the US – will spill over into the rest of the world, potentially keeping price pressures contained elsewhere.

In this new context (as says Emmanuel Macron), the Bank of England (BoE) has the hard task to deliver its first policy decision post-Trump. The BoE is expected to cut rates by 25bp today. The markets price in two more rate cuts by the end of next year and gives a 35% chance for a third one. Of course, the BoE must also deal with the higher government spending that Rachel Reeves promised a few days ago – that alerted the BoE hawks that the easing must be carefully measured to counter the fiscal expansion, as well. But since then, the gilt yields soared so sharply that they wiped out all the UK’s fiscal headroom. And now, the bank analysts are lowering their post-Trump growth expectations for the UK – which is, in return, dovish for the BoE bets.

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Risk Warnings and Disclaimers

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Danske Bank

Economic

In focus today

Today, focus will remain on investors digesting the US election result. In addition, German political uncertainty has resurfaced (see below) and we are in for several important monetary policy decisions. We expect Fed to cut rates by 25bp to 4.75%, the BoE to cut by 25bp to 2.75%, the Riksbank to cut by 50bp to 2.75% and Norges Bank to stay on hold at 4.5%. This is in line with market expectations. That said, recent budget uncertainty in the UK leaves the Bank of England communication with the potential to move markets irrespective of the rate decision.

We also get quite a few datapoints around the globe: September retail sales data in the euro area, industrial production data for September in Germany, flash inflation data and budget balance for October in Sweden, wage data for September in Japan overnight and trade data for October in China.

Economic and market news

What happened overnight

In China, total exports surprised significantly to the topside at 12.7% Y/Y (cons: 5.2% Y/Y, prior: 2.4% Y/Y). Leading up to the election, Chinese factories rushed production as a Trump win became more likely, increasing the threat of a tariffs and ultimately a trade war. At the same time, imports turned negative at -2.3% Y/Y (cons: -1.5% Y/Y, prior: 0.3% Y/Y). Trumps election could, in the short run boost Chinese exports as seen this month, as importers increase their purchases ahead of potential US and EU tariffs.

What happened yesterday

In the US, Republicans eyed a red sweep as President Donald Trump was re-elected, the Republicans gained control of the Senate, while the battle for the House remained undecided – albeit leaning in favour of the Republicans. Following the outcome of the US election, the dollar index had its biggest gain since September 2022, US yields surged, and US stocks hit record-highs.

If the Democrats take the House – at this point only priced as a 5% likelihood in prediction markets, some market reactions might reverse, particularly in fixed income markets. A Republican majority would likely entail a fiscal priority of increasing the budget deficit and public debt, potentially heightening inflation pressures. In response to these developments, US yields rose, with the 10-year U.S. breakeven inflation rate reaching around 2.40%. This rate is within the Federal Reserve’s tolerance level, although further increases might prompt a more hawkish stance.

Looking ahead, market focus is expected to return to economic fundamentals, starting with the FOMC meeting today and the US CPI report due next week. The election outcomes reinforce a bearish outlook for EUR/USD through 2025, driven by stronger U.S. growth dynamics.

In the euro area, the final PMIs for October came in: Composite at 50.0 (cons: 49.7, prior: 49.7), Services at 51.6 (cons: 51.2, prior: 51.2) and Manufacturing at 46.0 (cons: 45.9, prior: 45.9). Additionally in Germany, we receive data on factory orders in September, providing a hint of what the industrial production data will show on Thursday. The final PMIs surprised slightly to the upside, largely due to the growth in services in Italy, France and Germany. The activity in services continues to support growth in the euro area, despite the decline in manufacturing.

The Trump win increases uncertainty of the economic outlook in the euro area, but short-term we do not expect an impact on the economy, while the medium-term effect is negative. The increased uncertainty of the medium-term growth outlook supports our expectations for back-to-back rate cuts by the ECB due to concerns of below-potential growth.

In Germany, the chancellor Olaf Scholz, fired his finance minister, Christian Lindner and called for snap elections in March, throwing the country into political disarray. The firing of Lindner from the liberal party comes after many months of disagreements over the 2025 budget and a longer-term plan to revive the German business model. Increased political uncertainty will not be positive for the already fragile German economy and curt hurt growth through lower investments.

In Sweden, the monthly inflation expectations survey revealed that that lower inflation and lower rates have not yet had a positive impact on consumers and that the hard-beaten construction sector is still deteriorating. While headline PMIs firmed, the services employment index collapsed. Inflation is a tad higher than the Riksbank’s forecast, however given the bleaker-than-anticipated recovery the probability of a rate cut today has in our view tilted in favour of 50bp. The rate decision will be published at CET 09:30.

Equities: Global equities were up 1.7% yesterday, driven by the outcome of the US election. Looking at this morning’s moves in open cash trades and futures, markets appear to be fluctuating in a normalized fashion. While the outcome of the House cannot yet be definitively called, it seems most likely that we will see a red sweep. On a global scale, the election itself did not have an overwhelming effect on equity returns, considering the huge focus. Beneath the surface, we observed a massive outperformance of US equities and a stronger dollar. As expected, cyclicals outperformed defensives by a substantial margin, with banks performing particularly strongly in the US. The US KBW regional bank index ended 10.7% higher yesterday. European banks underperformed compared to their US counterparts, mainly due to differences in cross-Atlantic yields and changes in the relative monetary policy outlook. Spanish and Portuguese markets were the primary losers, driven by their banking sectors. It is important to note the “Mexican effect”, with some of these banks deriving up to 50% of their profits from Mexico.

Small caps benefited yesterday, outperforming large caps by more than 1% on a global level, again led by the US with the Russell 2000 index ending 5.8% higher. The strong performance in small caps may be surprising to many, as small caps generally suffer from higher yields. However, considering the developments leading up to the election, this should not be as surprising. Despite suffering from higher yields, small caps are benefiting from de-regulation and US-first policies. One of the interesting aspects to follow will be the M&A activity across the board, from small to mega-cap deals under the new administration.

The main loser has been utility companies, as they are both related to the green transition and negatively exposed to higher yields. In the US yesterday, the Dow was up by 3.6%, the S&P 500 by 2.5%, Nasdaq by 3.0%, and the Russell 2000 by 5.8%. Asian markets are mixed this morning, reversing some of the differences from yesterday. While the effect of Chinese policy announcements can be hard to separate from the US election effect, we can at least partly conclude that the US election result has not led to investors fleeing away from China. US and European markets are calm this morning with small gains in both markets.

FI: Markets are extending the “Trump trade” with higher yields, higher BEI-rates and a steeper US yield curve driven from the long end. However, the impact on the European yield curves has been somewhat different as short-dated yields declined and the curve steepened from the short end as the market are factoring in more rate cuts in Europe and less rate cuts in the US. However, we still expect that the Federal Reserve will cut rates tonight with 25bp.

FX: EUR/USD dropped by around two full figures, trading in the mid 1.07-1.08 range, as a significant divergence emerged between USD and EUR rates following Trump’s win. The USD broadly gained, not only within the G10 space but also against tariff-exposed currencies such as CNH and MXN. USD/JPY rose above the 154-mark. EUR/GBP tracked lower during yesterday’s session and ahead of today’s expected 25bp rate cut from the BoE. Despite the extended dollar rally, EUR/Scandies kept stable, even closed lower on the day. There could be an initial negative impact on the SEK if the Riksbank opts for a 50bp rate cut today, but upside in EUR/SEK should be limited given that it is broadly anticipated and that our short-term model suggests that the cross is stretched overbought.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

Japan’s gross domestic product for the July-September quarter is forecast to post a sharp slowdown, up just 0.2% on quarter, or an annualized 0.6%, as consumers remained frugal amid high costs for necessities that were aggravated by a rare, acute rice supply shortage and business investment is believed to have declined.

The expected sluggish growth follows a strong 0.7% rebound (annualized 2.9%) in the April-June quarter, which was led by private consumption, which accounts for about 55% of the GDP, and solid corporate capital investment. In the January-March quarter, the economy slumped 0.6% (annualized 2.4%) for the first contraction in two quarters, hit by suspended output at Toyota group factories over a safety test scandal that had a widespread impact beyond the auto industry.

The Cabinet Office will release preliminary GDP data for the third quarter of 2024 at 0850 JST on Friday, Nov. 15 (2350 GMT/1850 EST Thursday, Nov. 14).

Domestic demand is expected to add a slight 0.1 percentage point to total domestic output in Q3 after boosting the Q2 GDP by 0.8 point while external demand (exports minus imports) is also seen lackluster, adding just 0.1 point for the first rise in three quarters after trimming Q2 GDP by 0.1 point.

Looking ahead, the economy in October-December is expected to show only modest growth as many households are struggling to make ends meet amid high costs for food and fuels even though large firms are raising wages to cope with widespread labor shortages. Firms may increase investment in capacity in Q4 compared to Q3.

From a year earlier, the economy is forecast in the third quarter to have posted its first increase in three quarters, up 0.3%, after falling 1.0% previously.

Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:

Private consumption +0.2% 2nd straight rise after 4 drops (+0.9%)

Business investment -0.3%, 3rd drop in 5 quarters (+0.8%)

Public investment plus -0.8%, 4th drop in 5 quarters (+4.1%)Private inventories 0.0 point, flat after 4th drop in 5 quarters (-0.1 point)

Net exports (external demand) +0.1 point, 2nd rise in 5 quarters (-0.1 point)

Domestic demand +0.1 point, 2nd straight rise after 4 drops (+0.8 point)

Source: Macenews

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Pepperstone

Economic

Political

WHERE WE STAND

I’ve relatively little to add this morning that I didn’t mention in yesterday’s brief post-election musings, with Wednesday’s trade largely bringing a continuation of the momentum seen as Trumps victory in the presidential election became increasingly clear through the early hours of yesterday.

Still, I suppose we should be glad that, after 2 politics-related all-nighters in four months, we won’t have to go through this again for another four years!

We did, though, see the odds of a ‘Red Wave’ further increase yesterday, with Decision Desk’s model at one stage assigning over an 80% likelihood to the GOP retaining the House, in addition to having already won the Presidency, and flipped the Senate.

In turn this saw the so-called ‘Trump Trade’ go into overdrive, as participants went ‘all in’ on the idea of a GOP sweep.

Such a trade was, perhaps, most obvious in the fixed income complex, where Treasuries sold-off across the curve, which bear steepened, with weakness most pronounced at the long-end. Benchmark 10-year yields rose around 15bp on the day, while 30s rose around 20bp piercing north of 4.65%. While a degree of this move can be put down to concerns over greater issuance amid a potentially ballooning budget deficit, the selling pressure also reflects a substantial re-rating to the upside of both medium-run growth and inflation expectations.

Yields at these levels, though, are likely to prove attractive, with 2s in particular, trading at 4.25%, looking rather over-sold, particularly when one considers that the FOMC are likely to take rats back to neutral (3ish%) by next summer. Participants, hence, could use this bout of selling pressure as an opportunity to lock in yield before further Fed cuts are delivered.

Meanwhile, in the equity space, the aforementioned upside re-rating of growth expectations proved to be a fillip for small caps, seeing the Russell 2000 jump over 5% higher. At a broader level, sentiment was solid across the board on Wall Street, with the S&P 500 closing at a fresh record high, buoyed by expectations that Trump’s tax cuts will provide a boost to corporate earnings.

Strong earnings growth, along with solid economic growth, and a forceful ‘Fed put’, remain the three main pillars of my long-standing equity bull case. The election result has done nothing to deter me from this bull case and, if anything, has actually strengthened since, given the lighter nature of positioning, and removal of the potential for protracted political uncertainty, likely teeing things up in strong fashion for a rally into year-end.

In the FX space, it proved to be a day of broad-based USD strength, again likely setting the tone for what’s to come in the coming weeks. The greenback, per the DXY, notched its best day in over four years, gaining more than 1.5% against a basket of peers, as the DXY rose north of the 105 handle.

While those USD gains were relatively broad-based, demand was most significant against those currencies most likely to suffer in a potential renewed round of Trump tariffs. Naturally, this led to the MXN, CNH, and EUR leading declines, with the latter also facing headwinds amid a dovish repricing of the ECB outlook, with participants betting that Lagarde & Co shall need to ease policy to a more significant degree, in order to cushion the economy from growing downside risks – certainly, a plausible assumption. The JPY was also a fair chunk softer, continuing to trade as a rates proxy over any other potential drivers.

LOOK AHEAD

No rest for the wicked, as they say, with another busy day lying in wait.

This evening’s FOMC decision takes centre stage, with Powell & Co. set to continue the journey back towards neutral, delivering a 25bp cut to the fed funds rate, an outcome which money markets fully discount. Guidance will continue to point to a data-dependent, meeting-by-meeting approach to policymaking, with a further 25bp cut on the cards at the December confab. Powell shan’t be drawn on any political matters, though incoming President Trump’s proposals will play a greater role in the Committee’s thinking, and economic forecasts, next time around.

Closer to home, the BoE also decide policy. The MPC are set to vote 8-1 in favour of another 25bp cut, the second of this cycle, though are unlikely to offer any overtly dovish remarks, given the inflationary implications of last week’s Budget. That, incidentally, should also see the Bank revise the CPI profile higher throughout the forecast horizon. Today’s 25bp cut is likely to be the last of the year, with the aforementioned Budget having increased the risks of a resurgence in price pressures.

There is plenty else going on today, besides those two main events. The Riksbank are set to deliver a 50bp cut, while the Norges Bank should keep rates steady at 4.25%.

Away from monetary policy, focus stateside will fall on the weekly jobless claims data – though neither print coincides with the November nonfarm payrolls survey week – as well as the preliminary read on Q3 labour costs, and the latest wholesale inventories figure. Participants will also remain attentive to political developments, particularly further signs that the GOP are set to win the House.

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Warren Takunda

Economic

Donald Trump’s victory in the US presidential election left investors and business leaders across the globe scrambling to assess what his return to the White House will mean.

Stock markets, the dollar and bitcoin rallied in the immediate aftermath of his win, while shares in defence companies, prison operators and Elon Musk’s Tesla rose sharply. Meanwhile, renewable energy companies’ and German carmakers’ stocks fell. Here, we study the outlook for key industries.

Manufacturing and cars

Global manufacturers are firmly in Trump’s sights. Threatened 10% tariffs on all goods imports – and up to 60% and 100% for China and Mexico respectively – would inevitably be passed on to US buyers, raising prices and depressing import volumes.

Pharmaceutical, automotive, and chemicals are the most exposed industries because they represent the lion’s share of European exports to the US, according to Morningstar DBRS, a credit rating agency. The share prices of European carmakers including BMW and Mercedes-Benz dropped steeply on Wednesday.

Vaccine makers around the world such as Pfizer, BioNTech and GSK will be watching Trump’s appointments closely, after the president-elect indicated he will discuss policy with antivax ally Robert F Kennedy Jr.

In the longer term, more international manufacturers may try to get inside the protectionist wall, by building US factories. Volkswagen’s Audi and Porsche subsidiaries could be particularly vulnerable because they lack American factories.

“I want German car companies to become American car companies,” Trump said at a rally last month. “I want them to build their plants here.”

Technology

Tech is a key industry for the US economy and Trump has already signalled support for the cryptocurrency sector.

He has gone so far as to give a keynote speech at the annual Bitcoin Conference in Nashville where he pledged to “ensure that the US will be the crypto capital of the planet”. He went on to promise that he will fire Gary Gensler, the crypto-sceptic head of the US financial regulator the Securities and Exchange Commission.

Trump has also indicated that oversight of artificial intelligence, which has been the focus of a multi-billion dollar investment boom, will be relaxed. There is also widespread expectation that Lina Khan, the head of the Federal Trade Commission and a champion of a tough approach to the big tech firms, will be replaced.

But the ever-mercurial Trump has also voiced hostility towards important players, for instance saying he would “do something” about Google’s power, and threatening Meta’s Mark Zuckerberg with jail. TikTok, previously in Trump’s crosshairs, could be saved from a forced sale, however, with Trump pledging to “save” an app he had tried to ban during his first presidency.

Elon Musk will certainly be in Trump’s favour. The Tesla CEO and owner of X – as well as SpaceX, Neuralink and xAI – is a “star”, according to Trump.

Energy

Trump stormed to power with the promise to hand Americans the “lowest cost of energy of any industrial country anywhere on Earth”.

His plan includes wringing as much oil and gas from the US as possible by removing red tape and opening up federal land for new fracking projects. The impact is likely to be more marginal than environmentalists fear, according to analysts.

But his plan to bring Joe Biden’s burgeoning green economy to heel has already wiped billions from the market value of big European renewables developers.

Trump’s election triumph slashed €17bn from Denmark’s wind power giant Ørsted after its shares slumped by 11% on the Copenhagen Stock Exchange.

Vestas, a Danish wind turbine developer, lost 10% of its market value and is now worth €137bn. Shares in Spain’s Iberdrola, a leading renewables developer and the owner of Scottish Power, slipped by 4% to shave over €3.4bn from its shares.

Experts believe it is possible, but unlikely, that Trump would repeal Biden’s Inflation Reduction Act, which stands to inject about $433bn in grants, loans and tax incentives to healthcare, utilities and clean-energy companies and benefit many of the “red states” which helped him to power.

Aerospace and defence

Commercial aerospace companies could also be caught up in tariffs. Airbus, the world’s largest planemaker, has already said it will pass them on to airline customers – as it did with tariffs imposed in 2020.

Robert Stallard, an analyst at Vertical Research Partners, said the US planemaker Boeing would also be vulnerable if tit-for-tat tariffs take their toll. “Whatever occurs, tariffs on new aircraft are very likely to mean higher airline ticket prices,” he said.

The prospects for weapons manufacturers will depend on Trump’s foreign policy positions. With an isolationist White House, the EU may feel that it should increase defence spending. That could eventually benefit European arms makers like the UK’s BAE Systems and Germany’s Rheinmetall.

For the big US defence companies such as Lockheed Martin, RTX and Northrup Grumman, Trump’s pledge to “strengthen and modernise” the military with US kit could mean increased orders. On the other hand, his pledge to “stop wars” could imply a smaller military in the future – if he follows through.

Food and freight

The immediate aftermath of Trump’s win gave an insight into what his trade policies could mean for the food and farming industry: Chicago’s soya bean futures fell by almost 2% while wheat and corn prices also dropped, largely due to fears over a new trade war with China.During the last Trump administration soya bean farmers in the US, which relies on the Chinese market, were hit by retaliatory tariffs that cut demand, and saw supply shift to Brazil and Argentina.The EU’s food and wine industry could face challenges too. In 2019 European cheese and wine was hit with tit-for-tat tariffs after a disagreement over the EU paying subsidies to aerospace giant Airbus.Domestically, Trump plans to halt legislation to ban price gouging by large food corporations, suggesting that his economic policies would bring prices down.The global shipping industry is worried fresh trade wars under Trump could see a new spike in container prices. The ocean freight intelligence platform Xeneta warned that shipping container rates grew by 70% during the last Trump administration.The Red Sea crisis has already seen traders face huge price hikes, with fourfold increases compared with last year in some cases.

Source: TheGuardian

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Economic

Overview

A quicker-than-expected conclusion to the US presidential race saw sentiments returning to risk-on in Wall Street overnight, as positioning for political uncertainties unwind. The VIX plunged 10%, while gold prices were down more than 3%. Chatters that the results could take days or even weeks to conclude were quickly dispelled within a matter of hours.

What’s next?

Of course, we still need to see who takes control of the US house, but with the Republicans inching closer to the finishing line (205-190), the chances of Democrats taking back control of the House just gets narrower. A potential Red Sweep could mean little resistance to Trump’s tax cuts and spending plans, along with his business-friendly deregulation approach.

We have seen the rates market recalibrating to Trump’s victory with a paring of rate cut bets in 2025. A cumulative 100 basis point (bp) of cuts through 2025 is now the consensus. So while the Federal Reseve (Fed) may follow through its own guidance with a 25 bp cut this week and another 25 bp cut in December, we may see policymakers leaning towards a less dovish tone, so as to leave some room to address the unwanted risks of another bout of inflationary pressures from a Trump presidency and more so, a Red Wave.

What may it mean for markets?

A lean into the cyclicals and the underperformance of defensives should remain the theme into year-end, as any upcoming announcements from Trump will be pro-business in terms of fiscal spending, tax cuts and deregulation. Anticipation of upcoming fiscal plans may allow sentiments to bask in optimism.

A more gradual path of rate cuts should benefit financials on lessening pressures on their interest margins. Deregulation efforts should benefit energy, financials and technology, as seen in Trump’s presidency in 2016. Upcoming fiscal plans and focus on “America First” may benefit industrials. Overall year-end seasonality remains positive as well, while the run in US economic upside surprises and corporate earnings momentum may add further tailwind to the risk environment.

China

We may expect risk-taking to be limited for now, as anticipation builds around potential tariffs under a Trump administration. Trump’s approach as seen in 2018 may be to go hard on China at the onset, before trying to negotiate to a middle ground. So in a way, things could get worse before it gets better.

Tariffs of as much as 60% on Chinese goods were a key part of Trump’s campaign, so that should be the starting point, which could trigger much jitters. More targeted support to affected industries, weakening of the yuan and retaliatory tariffs may be part of China’s toolbox, while its quests to reduce reliance on foreign technology and improve domestic demand should continue. But if history is any guide, the initial phase of the 2018 trade war saw Chinese equities dipping more than 25%.

Singapore

With the index’s significant exposure to banking stocks, a more gradual rate-cutting process from the Fed should translate to a slower taper in their net interest margins. Coupled with the recovery momentum in its non-interest income, the banks should continue to be the key drivers for the performance of the Straits Times Index (STI). A more than 5% dividend yield remains attractive as well, offering both a growth and income story for investors.

The risks may come with any secondary impact from US tariffs on China, given Singapore’s trade-dependent economy. The STI has formed a top during the onset of the 2018 trade war and another round of trade tensions may see a similar reaction. But while news await on that front, a break to a new higher high for the STI may seem to leave sight on its all-time high at the 3,900 level for a retest.

Japan

In the 2018 trade war, the Nikkei saw a 16% retracement, which is relatively resilient compared to its Asian counterparts. But despite being US close ally, Trump may not hesitate to put the roughly 1.5 million vehicles that Japan exports to the United States each year under his crosshair. A 10% to 20% tariff on ‘everything else entering the US’ has been floated during his campaign. But of course, US decoupling from China may have some positive spillover onto Japan, as global supply chain seeks diversification. The overall net impact can be hard to grasp for now without more clarity.

The stronger US dollar may be a challenge, especially with the USD/JPY back at its July 2024 levels. Japan is already on the US’ currency manipulator watchlist, so further weakening may invite criticism from Trump and put Japan’s trade surplus with US under the radar. Not to mention the imported inflationary pressures and the capital outflows from widening yield differentials.

We expect the Bank of Japan (BoJ) to hike rates by 0.1% in December on improving wage-spending dynamics, but it may be insufficient to overturn the upward trend in the USD/JPY. Buying on dips may remain the strategy here.

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Justin

Economic

What you need to know today

Trump will be the 47th U.S. president

Republican presidential nominee Donald Trump will be elected the 47th president of the United States after defeating Democratic candidate Kamala Harris, according to NBC News. If Trump follows through with his campaign promises, he will enact tax cuts, mass deportations and heavy tariffs on imports.

Multiple record closes

All three key U.S. indexes surged on Wednesday, hitting all-time highs, on the back of a broad rally in the market. The 10-year Treasury yield jumped 14 basis points to 4.43% as investors anticipate heavier spending by the U.S. government and a possible spike in inflation. Europe’s Stoxx 600 index retreated 0.54%.

Tesla surges, solar stocks drop

Tesla shares surged 14.8% as investors bet that Trump being in the White House would benefit major backer and Tesla CEO Elon Musk. However, solar stocks tanked on fears that Trump would slash tax credits for solar energy.

Tailwinds for crypto

Bitcoin surged as much as 10% to hit $76,493.86 overnight, a new high for the cryptocurrency. Shares of crypto companies such as Coinbase and MicroStrategy also popped. Crypto is riding high as Trump had branded himself as a pro-crypto candidate.

[PRO] Why small-caps are surging

The Russell 2000 popped 5.84%, its best daily performance in more than two years. While Trump’s proposed cuts to the corporate tax rate are widely seen to boost the overall stock markets, small-cap companies, in particular, will also benefit from a range of other factors related to a Trump presidency.

The bottom line

Donald Trump’s victory in the U.S. presidential elections is providing a tailwind to risk assets.

His support for “lower corporate tax rates, deregulation, and industrial policies that favor domestic growth” could boost the economy, which, in turn, will lift stocks, Marc Pinto, head of Americas equities at Janus Henderson Investors, wrote in a note.

Investors’ expectations on those fronts have already boosted the stock market. The Trump rally, in short, has begun.

Bank shares jumped on the back of prospective looser regulation in the sector, with many seeing double-digit rises.

So-called legacy automakers shares, like that of General Motors and Ford, had their engines juiced by Trump’s vow to roll back vehicle emissions standards and remove incentives for electric vehicles.

That’s bad for EV companies, but Tesla is an exception. CEO Elon Musk has been a strong supporter of Trump, and investors appear to think this relationship could be an asset to the company.

The Trump victory lifted major U.S. indexes to new highs. The S&P 500 rose 2.53%, the Dow Jones Industrial Average popped 3.57% and the Nasdaq Composite advanced 2.95%.

To be sure, yesterday’s frenzy could have been a relief rally as much as a Trump rally.

“A decisive win removes the overhang of an unclear or a contested outcome. And that by itself clears some of the uncertainty and is helping that strong reaction we are seeing in the markets,” said Edward Jones senior investment strategist Angelo Kourkafas.

So it’s quite likely that as emotions and anticipation fade, so will the rally.

Besides, rising Treasury yields and potential universal tariffs are casting a shadow over markets, noted BMO Wealth Management chief investment officer Yung-Yu Ma.

For now, however, the Trump rally is lighting up the markets.

Source: CNBC

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Chapter Two

Beyond the borders

Trumpflation

Rate Decisions And German Politics Join US Election As Key Market Focus Areas

In focus today

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Preview: Japan Q3 GDP Growth to Show Sharp Slowdown as Consumers Remain Wary Amid High Costs, Capex Seen Down

Source: Macenews

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More Tariffs, Less Red Tape: What Trump Will Mean for Key Global Industries

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Energy

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Food and freight

Source: TheGuardian

Trump 2.0: What’s Next and What Does it Mean for Markets?

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What may it mean for markets?

The Trump Rally Begins

What you need to know today

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Source: CNBC

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