Trump's first moves
The US election seems ages ago now, but we entered Novemberin the final campaign stretch, with both candidates doing their best to winover swing states. What was expected to be a tight race turned out to beanything but - and while the result dealt a major blow to environmental causesand gender equality, it did bring a degree of certainty to markets.
With enough seats for majorities in both the House andSenate, Trump is well-positioned to advance his legislative agenda. US equitiessurged over 7% during the month, comfortably ahead of other regions, as marketsrallied around Trump’s pro-business stance. Smaller-cap stocks performedparticularly well, perceived to be the biggest beneficiaries of his policies.
It seems pretty clear where things are heading on issueslike tariffs on Chinese goods and reducing immigration, but Trump’s campaignwas never big on details. The next few months will be spent trying to separatereality from rhetoric.
For the Federate Reserve (Fed), the challenge is that a lotof Trump’s proposed policies could drive inflation. Their job is to keep pricesstable, and with an inflation rate that’s not entirely under control, that’s atricky spot to be in.
Without knowing when or how big the changes will be, the Fedcan only focus on the current data. With that in mind, they followedthrough with a 0.25% rate cut, bringing interest rates into a 4.5 - 4.75%window.
A bigger worry for the Fed? Trump trying to interfere withtheir independence.
Shifting policies in the UK
The Bank of England (BoE) matched the Fed’s lead, bringingrates down from 5% to 4.75%. This cut was anticipated, but since the AutumnBudget, expectations for future interest rate cuts have lowered. Now, only twomore reductions are predicted before June 2025.
The other big announcement from the BoE was their plan toroll out changes, following Ben Bernanke’s independent review earlier in theyear. The changes focus on how the Bank makes decisions and how theycommunicate them.
Forecasting and modelling need to better reflect theeconomy’s current dynamics, and messaging needs to build credibility andconfidence to keep financial markets stable. However, to avoid any big shocks,any changes will need to be made gradually.
Global uncertainty
Chinese authorities continued to drip feed their fiscalsupport package into the economy, with $1.4 trillion aimed at refinancing localgovernment debt. China may well be holding back support measures until there’smore clarity on future tariffs from the US. Trump has initially suggested 60%on all goods. A near 2% loss for Emerging Market equity is a measure of currentuncertainty and the potential risks ahead. Equally, any outcome that’s morepositive could see meaningful returns, given such low levels of expectation andconfidence.
Meanwhile, European politics is still under a cloud, withthe German coalition government collapsing after Olaf Scholz fired his financeminister and then called a snap election. Many of the problems stem fromdisputes over fiscal spending and debt. Similar issues threaten to bring downthe French coalition Government, with Michel Barnier’s budget struggling to getthe support it needs from the far-right National Rally party. The FTSE WorldEurope-UK Index was down over 1% for the month.
We can paint quite a different picture for markets on eachside of the Atlantic, but as is often the case, it’s important to work outwhat’s already priced in. The US is expensive relative to most measures - yetit continues to power ahead and take the lion’s share of inflows.
No one wants to miss a party, but being the last to arrivecan be a risky game.
This commentary is for general information and shouldn’tbe seen as a personal recommendation. If you’d like to get advice on whether aninvestment is right for you, speak to your financial adviser. It’s alsoimportant to remember that an investment’s past performance isn’t an indicatorof its future performance, and you could get back less than you put in. There’salso no guarantee that an investment will meet its objectives.
