Trump triumphs

Donald Trump decisively won the US Presidential election, winning both the electoral college and the popular vote on 5 November.

In addition, his Republican party took control of the Senate and is on course for a clean sweep in the US elections as they only need another 8 out of the 24 uncalled seats to retain control of the US House of Representatives.

For Trump, this is an even more convincing win than he achieved against Hillary Clinton in 2016.

Currency Exchange Rates Update

With so many pundits suggesting the US Presidential election was on a knife edge, it’s not surprising that the actual result caused a big reaction in the financial markets with the Dollar gaining over 1.5% in value in the 24 hours immediately after the result announced against the Pound Sterling and over 2.25% against the Euro.

The Pound may have suffered like every other currency against the Dollar last week but had a better week against the Euro, gaining over 1.3% in value.

What’s in the news?

UK

Good news

The BoE (Bank of England) cut interest rates for the second time this year, this time by 0.25% taking the Bank Base Rate down from 5% to 4.75% by an 8-1 vote split in favour of the quarter-point reduction, suggesting a narrower range of views on the MPC (Monetary Policy Committee).

The MPC noted the recent budget provided "a substantial boost to debt growth and inflation," reinforcing their gradual approach to rate cuts.

Not-so-good news

The first Labour Budget for nearly 15 years saw parallels with Kwasi Kwarteng’s infamous 2022 mini-budget emerging within hours.

While an increase in borrowing had been anticipated, the downgrade in economic growth forecasts was not. After all, this Budget comes from a government which only told global investors less than ten days before the Budget that it was an administration laser-focused on policies which would grow the economy and make Britain the most attractive place in the world to do business.

Those words already ring hollow after Reeves’s inaugural Budget piled taxes upon taxes on the private sector and took the tax burden to its highest level since 1948.

Whether the changes to employers’ national insurance raise the projected ￡25bn annually is highly debatable, as companies are bound to scale back hiring. Add in the rise in the national minimum wage and Britain might have a new set of inflationary pressures.

Bosses who took part in a conference call with the Business Secretary, Jonathan Reynolds, following the Budget did not hold back. Rami Baitieh, the Morrisons CEO, warned of “an avalanche of costs”, while Simon Emeny, boss of pubs group Fullers, said he would be forced to halve investment next year to ￡30m. Sainsbury’s chief executive Simon Roberts has cautioned that new government measures will hit shoppers with higher prices by adding ￡140m to the supermarket’s costs.

One could be forgiven for thinking that Labour’s ‘growth, growth, growth’ agenda referred to inflation, insolvencies and unemployment.

The KPMG and REC UK Report on Jobs index reported that pay growth has slowed to its slowest pace since February 2021 as bosses warn Rachel Reeves’s Budget tax raid will hit hiring with permanent wage growth dropping to nearly a four-year low in October.

Goldman Sachs has cut its growth forecasts for the UK. The investment bank now expects the UK economy to grow by 1.4% next year, down from a previous forecast of 1.6% and expects growth to remain at 1.4% in 2026.

Ryanair is cancelling one in ten UK flights in 2025 after the tax rises announced in the Budget with Ryanair’s CEO Michael O’Leary saying it has “damaged” UK growth prospects and “made air travel much more expensive” and branded the Budget air tax rise ‘idiotic’.

USA

Donald Trump is planning to push aggressive tax cuts through Congress when he takes office in January, passing key legislation in his first 100 days in office. The president-elect ran on a platform of cutting a swathe of taxes, pledging to remove taxes from tips, overtime pay and social security and also pledged to reduce the corporate tax rate from 21 to 15%.

The Federal Reserve also reduced borrowing costs by 0.25% last week. While acknowledging uncertainties in the economic outlook, the Fed stated that "the economy continues to expand solidly."

The EU

Friedrich Merz has waited 25 years to become German chancellor and the conservative leader’s best chance is now just months away. The head of Germany’s centre-right CDU/CSU alliance is the clear frontrunner after Chancellor Olaf Scholz, a Social Democrat pulled the plug on his three-party ruling coalition and called for early elections.

Scholz dismissed Finance Minister Christian Lindner this week, destabilizing his centre-left government and ending its three-party ruling coalition. This upheaval in Berlin leaves Europe even more directionless, as France's government is also in a deadlock.

German economic data continues to go from bad to worse with the latest industrial data showing a further fall of 2.5% in September including a 7.8% contraction in car output with industrial production falling back to levels reached 18 years ago. The German economy has now seen almost no growth since 2018. According to the Bundesbank, companies including chemicals giant BASF, auto supplier ZF Friedrichshafen and home-appliance maker Miele & Cie have shifted resources out of Germany, leading to a net outflow of capital of more than €650 billion since 2010.

Others

China’s exports grew at the fastest pace in over two years in October as factories rushed to sell stock to major markets in anticipation of further tariffs from the US. Trump’s sweeping victory in the US presidential election has brought into focus his campaign pledge to impose tariffs on Chinese imports above 60%.

The Russian economy is on the brink after mortgage rates in some Russian banks reached an eye-watering 43%, a move that is likely to have shattering consequences for Russia's property market.

Recently, the Russian Central Bank raised interest rates to a historic high of 21% and is now on a par with those in Angola and Zimbabwe to combat sharply rising inflation.

Quote

Mark Twain, “Actions speak louder than words but not nearly as often”