Shaw and Partners

US stocks experienced a strong week, with the major indices closing at all-time highs in response to the presidential election. While the week had got off to a cautious start ahead of the election, equities cheered the victory of Donald Trump on Wednesday, as well as Republicans taking the Senate and looking set to retain control of the House of Representatives. Stocks breathed a sigh of relief on the decisive result, eliminating a hurdle of uncertainty, while cheering the hope of greater economic growth. The S&P 500 ended the week up at 4.7%, briefly crossing the 6,000 milestone on Friday. All eleven of its sectors saw gains, with banks, technology and industrials amongst the best performers. The Dow Jones Industrial Average was up 4.6%, briefly touching 44,000 for the first time, with both indices seeing their best weekly performance since November 2023. The tech-heavy Nasdaq Composite was up 5.7%, while the small-cap Russell 2000 jumped 8.6%.

On Wednesday the US dollar index had jumped 1.5% to its highest level in four-months. While it later pulled back owing to some profit-taking, the index was still up for the week. Another ‘Trump trade’ beneficiary was bitcoin, rising nearly 10% for the week and ended at a fresh record above $76,700 on hopes the Trump administration will be a boost to cryptocurrency. Away from the election, Thursday saw the Federal Reserve cut its interest rate by a quarter point, with chairman Jerome Powell stating that the incoming administration would not have a near term impact on its monetary policy decisions. Treasury yields had jumped higher in response to the election result, however, they subsequently reversed course after the Fed meeting. The yield on the 10-year note ended marginally lower at 4.30%, snapping its run of weekly advances.

Although European markets initially joined in with the US election enthusiasm, this quickly turned to caution over the potential tariff implications on the region. The pan-European STOXX 600 lost 0.8%, its third consecutive weekly loss. While the political picture in the US became clearer, the same could not be said for Germany, where the coalition government collapsed. Despite this, the German DAX’s losses were actually more modest than most of the regional indices, dropping 0.2%. There were also a number of central bank meetings in Europe, with Sweden’s Riksbank cutting rates by half a percentage point, the Bank of England cutting by a quarter point while Norges Bank was on hold.

Chinese equities had a particularly strong week, shaking off the Trump victory and instead focusing on the National People’s Congress (NPC). Investors were optimistic for additional stimulus measures, and indeed the NPC approved a RMB 10 trillion programme to finance local government debt, as expected. However, given the threat of Trump’s trade policy, some were left underwhelmed that more was not announced. Trade data for the week was mixed, with exports rising 12.7% year-on-year in October, more than expected, while imports dropped 2.3%. For the week the Shanghai Composite jumped 5.5% and the Hang Seng saw a 1.1% rise.

Weekly macro highlights

Federal Reserve cuts rates in November

The Federal Open Market Committee (FOMC) reduced the federal funds rate target range by 25 basis points to 4.50-4.75% at its meeting on 07 November. In its post-meeting statement, the FOMC emphasised that the risks to achieving its dual mandate of maximum employment and 2% inflation over the longer run are roughly in balance. Core personal consumption expenditure inflation, the Fed’s preferred measure of inflation, was unchanged at 2.7% year-on-year in September, while the unemployment rate was unchanged at 4.1% in October. The Committee reiterated that it will “carefully assess incoming data, the evolving outlook, and the balance of risks” in considering future changes to the federal funds rate target range. In addition, the FOMC noted that the Fed will continue reducing its holdings of Treasury securities, agency debt and mortgage-backed securities. Markets currently assign around an 87% probability to a rate cut at the next FOMC meeting on 18 December.

Bank of England cuts rates in November

The Bank of England (BoE) Monetary Policy Committee (MPC) voted by a majority of 8-1 to reduce the Bank rate by 25 basis points to 4.75% at its meeting on 07 November. Inflation in the UK has been lower than the BoE forecast at its August meeting, averaging 2% instead of the projected 2.3% in Q3 2024. Nonetheless, inflation is still expected to rise in the coming year, with November’s Monetary Policy Report forecasting a peak in headline inflation at 2.8% in Q3 2025. August’s forecast had projected a decline in inflation back to the 2% target by Q1 2026, but the forecast made in November projects inflation to return to the 2% target in Q2 2027. In part, this reflects the forecast impact of the UK’s Autumn budget. Markets currently assign around an 80% probability to no change at the next MPC meeting on 19 December.

China’s services PMI rises in October

The Caixin China services business activity purchasing managers’ index (PMI) rose from 50.3 in September to 52.0 in October, remaining above the 50 level that separates expansion and contraction. The faster rate of expansion reflected an improvement in demand conditions, with the new business subindex rising from 51.0 to 52.1. The employment subindex declined from 50.3 to 50.2, remaining in expansion for the second consecutive month, its longest streak above 50 since January 2024. Last week also saw the conclusion of the National People’s Congress Standing Committee. The announcement following the meeting highlighted that the local government debt ceiling will be raised by RMB 6 trillion, to be spent in RMB 2 trillion per year increments over three years. The increase in the debt ceiling will be used to tackle hidden debt of local government, with an additional RMB 0.8 trillion per year from existing local government bond quotas to be used for the same purpose.