Investors shake off wariness ahead of US Presidential election

?Investors are bracing for a week of potential volatility, with the highly fractious US Presidential election in focus and key interest rate decisions looming. For now, the FTSE 100 has shaken off nervousness and opened in the green, making fresh gains after Friday’s recovery. Miners and banks were on the front foot in early trade and energy giants have helped offset wariness by gaining ground of the back of a stronger oil price.?The benchmark Brent Crude has extended gains, to trade around $74.5 a barrel after the cartel OPEC+ again delayed plans to increase output for a month.

?As Republicans and Democrats embark on a last-minute surge of campaigning, some of the big Trump ‘plays’ on the markets have lost ground. Investors are reassessing Donald Trump’s chances of re-entering the White House, given polls which emerged over the weekend, indicating Kamala Harris may have gained ground in key battle ground states. The dollar has fallen back slightly, as the chances of Trump setting off a fresh tariff frenzy, pushing up inflation and interest rates, seem to have retreated a little. Bitcoin, which had also made strides of progress as markets priced in a Trump win, given his pro-crypto stance, has also continued to dip back. But this election is still far too close to call, so considerable swings in prices are likely as the results ebb in.

?It’s a big week for central bank policy, with a fresh round of rate cuts expected from the Federal Reserve and the Bank of England. The chances of borrowing costs coming down in the US on Thursday look bolted on, given the much weaker than expected jobs data on Friday. Markets are largely expecting a follow up 0.25% cut in December, but will be watching comments from Fed Chair Jerome Powell to back up those expectations.

?The UK Budget has set off a bout of indigestion about the potential for hotter prices in the years ahead, with UK gilt yields still volatile, although they’ve fallen slightly in early trade. Nevertheless, the Bank of England still looks set to cut interest rates this week, given inflation is currently below target. There will be keen eyes trained on the monetary policy report, which is due to be released alongside the MPC’s decision. There is the potential for companies to pass on the cost of higher National Insurance and the big investment plans could add to upwards price pressures. But on the flip side there is more potential for wage restraint given increased staffing costs and it’s stubborn pay growth which has stopped some policymakers from voting for rate cuts at previous meetings. Overall, the Bank is expected to go a bit slower on interest rate cuts, and a move below 4% by the end of next year currently looks much more unlikely. UK gilt yields are stay a little volatile, edging up again in early trade to 4.43%.

?Boeing’s woes are showing up in Ryanair’s difficulties, with the airline reducing its growth targets for next year due to the late arrival of new aircraft hurting its capacity. There’s a chance these could again by revised down, if Boeing doesn’t deliver all 15 of 30 737 MAX aircraft that were due to be land in the summer. Ryanair has been buffeted from all sides, with consumer caution affecting demand for flights, leading to a plunge in average ticket prices by 10%. The worst of the wariness appears to be easing off, with falls in average fares moderating and some strong forward booking trends emerging. But nosing the performance up significantly from here, given the capacity issues still haven’t been resolved, may still be challenging.

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