Trump wins, and US investors love his 'pro growth' policies. The TPP weekend wrap.

It would be hard to start with anything other than the American election this week. Donald Trump won Nevada on Saturday, putting him over 300 electoral votes and leaving Arizona as the last state to be called which is worth 11 votes. Harris has 226.

The battle for control over the Senate has also gone to the republicans with only the House left to fight for. Trump and the Republicans are looking likely to have a majority in both.

What was expected to be a close-run thing ended up being a resounding victory for Trump.

Most of the major US benchmarks rose to record highs, as investors wagered that the Republicans’ capture of the White House and Senate, along with their expected retention of the House of Representatives, a so-called red sweep, would result in faster earnings growth, looser regulations, and lower corporate taxes.

The small-cap Russell 2000 Index led the gains, surging 8.57% for the week, but was the sole benchmark to remain out of record territory, ending the week down 2.41% from its November 2021 record high. Meanwhile, the S&P 500 Index’s 4.66% gain was its best in almost exactly a year (the week ended November 3, 2023).

Trump is a real advocate of pro-growth. Hard to argue with the concept, but it remains to be seen what the cost of such growth will be. There will be a lot more spending and a lot more tariffs which could impact the global economy. However, Trump has shown in the past that the global economy is not his concern, and making America great ‘again’ is his only focus.

The election overshadowed much of the rest of the week’s economic and policy developments. Following its scheduled policy meeting concluding Thursday, the Federal Reserve announced a 0.25 percentage point cut in the federal funds rate, its first easing move since cutting rates by 50 basis points in mid-September. Traders noted that there had been some speculation as to whether Fed Chair Jerome Powell would mention the future president’s fiscal policy and its potential impact on monetary policy, but Powell was resolute in stating that any changes would be evaluated as they were announced and that, “We don't guess, we don't speculate, and we don't assume.” When questioned, Powell also stated that he would not resign if asked to do so by the president.

Europe

What was good for America, led to a sell-off in Europe. Trump may be positive for the US, but it’s hard to see how he could be positive for its trading partners. London stocks were firmly in the red on Friday closing down 1.28% on the week. This theme spread throughout Europe with the FTSE MIB in Italy falling 2.48%, the CAC in France dropping 0.95% and Germany’s DAX finishing 0.21% lower.

In the UK the heavily weighted miners were also under the cosh as China’s latest $1.4trn stimulus package underwhelmed investors.

The pound against the dollar also fell by 0.72% to 1.2893 as government debt yields in the States pushed higher.

The Bank of England’s (BoE’s) policy committee voted 8–1 to reduce the key Bank Rate a second time this year, by a quarter-point to 4.75%, as inflation continues to decelerate. BoE Governor Andrew Bailey said that “if the economy evolves as we expect, it’s likely interest rates will continue to fall gradually.”

On a closely linked note, Bank of England chief economist Huw Pill told an online briefing that the scope for further rate cuts would depend on price gains continuing to cool and the UK avoiding "big new disturbances". The recent Budget is expected to be inflationary, but economic theory does not always follow into economic practice.

Meanwhile, Sweden’s Riksbank lowered its key rate by half a percentage point to 2.75% in response to slowing inflation and a sluggish economy. Policymakers indicated they might cut again in December and in early 2025 if the outlook remains unchanged. In Norway, however, the central bank left its policy rate unchanged at 4.5% and signalled it would probably stand pat in December.

The HCOB eurozone composite purchasing managers’ index (PMI) was revised higher to 50 in October from an early estimate of 49.7, S&P Global said. The reading now indicates that overall business activity was unchanged. (PMI readings greater than 50 indicate an expansion in activity; readings less than 50 indicate contraction.) Manufacturing contracted at a slower pace than first estimated, while services sector output expanded at a slightly faster rate. However, business confidence fell to its lowest level so far this year.

In Germany, Chancellor Olaf Scholz called for a vote of confidence in January after his coalition government effectively ended when he fired Finance Minister Christian Lindner of the Free Democrats over disagreements on spending and economic reform. Opposition and business leaders called for a snap election to reduce uncertainty.

Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 3.8% and the broader TOPIX Index up 3.7%. Investor risk appetite was supported by the outcome of the U.S. presidential election and the Federal Reserve’s rate cut. These developments largely overshadowed the domestic corporate earnings season, where there were some downgrades to company guidance, and the adverse impact of yen strength on Japan’s export-heavy industries.

After initially selling off on the U.S. election result, the yen appreciated to around152 against the USD, from about 153 at the end of the prior week. Japan’s chief currency official, Atsushi Mimura, pointed to sudden one-sided moves in the currency markets and said that the authorities will monitor markets with a very high level of urgency and are ready to take appropriate action against excess moves.

On the economic data front, Japan’s real (inflation-adjusted) wages fell 0.1% in September, following a revised decline of 0.8% in August. Nominal wages grew 2.8% in September, in line with expectations but lagging consumer inflation at 2.9%. Household spending declined by less than anticipated, falling 1.1% year on year in September, with consensus having estimated a 2.1% decline.

Chinese stocks surged as Beijing’s unveiling of fresh stimulus measures offset concerns about potential U.S. tariff hikes. The Shanghai Composite Index gained 5.51%, while the blue chip CSI 300 added 5.5%. In Hong Kong, the benchmark Hang Seng Index was up 1.08%, according to FactSet.

China's top legislative body, the standing committee of the National People's Congress, announced on Friday a RMB 10 trillion program to refinance local government debt, which Beijing has flagged as a key economic and financial risk for the country. Policymakers also raised the local government debt ceiling to RMB 35.52 trillion from RMB 29.52 trillion, marking the first time they raised the ceiling midyear since 2015. Finance Minister Lan Fo’an also pledged to take a “more forceful” fiscal policy in 2025 to support growth but did not provide details.

The Week Ahead

Another busy week of macroeconomic headlines is on the cards as both UK gross domestic product and US inflation figures are due.

First though, UK unemployment data for September will be in focus as an increase from 4.0% to 4.1% over the month is expected, according to Trading Economics.

Inflation in the US will then make headlines on Wednesday, with six consecutive monthly declines in the headline rate expected to have come to an end in October.

Markets anticipate the headline figure to have climbed from 2.4% to 2.6% over the month, as the core rate, excluding energy and food costs, remained at 3.3%.

Attention will be on the figures as markets mull the prospect of further interest rate cuts ahead, including after Donald Trump’s election victory.

Preliminary UK gross domestic product data for the third quarter follows on Thursday, which is anticipated to show slowing growth against the previous period.

Having expanded by 0.5% in the second quarter, expectations are for the UK economy to have grown by 0.3% over the third, Trading Economics forecasts show.

Eurozone gross domestic product figures are also due over the week, alongside producer price inflation data from the US.

Next week brings a host of blue-chip updates in London, including AstraZeneca, Aviva and Vodafone.

Direct Line will kick off proceedings on Monday, before a busy Tuesday sees AstraZeneca, Vodafone and Flutter update.

Shell will also be in focus as a verdict is due in its Dutch environmental battle.

Wednesday then brings reports from energy firm SSE, before another busy day on Thursday featuring Aviva, B&M, WH Smith and Burberry.

On our platform:

If ever there was a week that shows why a 'leveraged tracker' (or 2) needs to be in a clients portfolio, last week was it.

Many feared that markets might be volatile going into the election, but instead it was a one way increase in the value of US?equities. You don't get many weeks like that, but even if the move is unexpected, trackers will capture the movements.

The TPP leveraged trackers, track their benchmarks at 1.5 x market rates, so you probably don't need me to tell you which strategies are off to a flying start in November. It really has been the month of the leveraged tracker (so far). However, it's very early so things could change.

Our long or flats used the sell off in Europe to enter the market on the BUY side, and hopefully this week they'll capture of the movements they're after.

Meanwhile, some of our active strategies were hurt on the US market boom, as although their position isn't excessive in size, the movements against their SELL US positions were. The strange thing is that most active strategies are on the BUY side overall at the moment, but the BUY Europe and SELL?US?spread didn't work this week.

Let's hope for a different outcome for them this coming week.

Enjoy the rest of your weekend, and here's to a profitable week in the markets.