Trump drives markets to best week of 2024

Welcome back to SovereignBeat!

This week has been a whirlwind for the U.S. and global markets. The U.S. election delivered a surprisingly quick result, sparking a bullish surge across most markets—except for bonds. Investors anticipate that increased fiscal spending and potential tariffs under the new administration could mean fewer rate cuts and higher yields (bond prices and yields move in opposite directions). On top of market frenzy following the election results, investors had to absorb rate cuts from the Fed and BoE just two days later, amplifying the volatility.

• Trump ascends to power, markets surge

• Fed & BoE cut rates by 25bps

• China launches $10T stimulus

• Japan’s 10y yield breaches 1%

• Bitcoin hits $80K, post-Trump rally

• Stocks post best week in a year

Let’s dissect

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Markets Snapshot

Macro and Fixed Income Markets

• USA: The Federal Reserve reduced the federal funds target range by 25 basis points to 4.5%-4.75%, following a previous 50 basis point cut in September, as anticipated. Policymakers highlighted their dedication to thoroughly evaluating incoming data, economic trends, and risk factors before considering further changes to interest rates. Chair Powell stated that the Fed is not on a predetermined path and will make decisions on a meeting-by-meeting basis. There had also been speculation about whether Powell would address the future president's fiscal policies and their impact on monetary policy. However, Powell made it clear that any changes would be evaluated as they are announced, refusing to speculate on unannounced policies. He also stated that he would not resign if asked to do so by the new president.

• Despite the Fed’s total 75bps rate cut since September, concerns persist over large Treasury debt sales. While short-term yields fell recently, longer-term yields rose and remain elevated, reflecting bond market volatility. With a USD 6 trillion debt maturity looming in 2025, ongoing high debt sales continue to weigh on the market.

• Treasury yields finished the week slightly lower, though not without volatility. The 10-year yield surged to 4.48% during intraday trading on Wednesday as markets responded to news of Trump’s projected presidential win. It later eased, closing around 4.31% on Friday following FED’s 25 bps rate cut on Thursday.

• The Consumer Price Index (CPI) report, which is set to be released on Wednesday, will reveal if October continued the trend of mixed inflation data. The September CPI showed an annual inflation rate of 2.4%, slightly down from August’s 2.5%. However, core inflation—which excludes energy and food—rose to 3.3%, up from 3.2% in the prior month.

• UK: The Bank of England’s (BoE) policy committee voted 8–1 to cut the key Bank Rate by a quarter-point to 4.75% on Thursday, marking the second rate reduction this year as inflation continues to slow. Policymakers acknowledged that last week’s government budget raised their growth and inflation forecasts. The BoE now expects inflation to around 2.75% next year and then remain above the 2% target in 2026, until falling back in 2027 – a year longer than it had forcasted in August. Inflation dropped to 1.7% in September, down from 2.2% the previous month, but price increases in the dominant services sector have remained more stubborn. Growth is projected to increase by approximately 0.75% over the next year. Despite potential further rate cuts, the upward pressure on inflation from the budget and growing global risks, including possible new U.S. tariffs, could lead to more modest policy loosening than many had anticipated.

• Sweden: Cental bank Riksbank cut its key rate by 0.5 percentage points to 2.75% due to slowing inflation and a weak economy, with policymakers suggesting further cuts in December and early 2025 if conditions persist. In contrast, Norway's central bank kept its policy rate at 4.5% and indicated that it is likely to remain unchanged in December.

• Japan: The yield on the 10-year Japanese government bond rose above 1% from 0.95% the previous week, as market participants speculated that the Bank of Japan (BoJ) might raise interest rates in January 2025. The minutes from the BoJ's September monetary policy meeting, released during the week, confirmed that board members agreed to continue raising the policy rate if the economic and price outlook materialized, while also keeping an eye on global developments, particularly in the U.S. economy.

• After an initial sell-off following the U.S. election, the yen appreciated to around JPY 152 against the USD, from approximately JPY 153 at the end of the previous week.

• China: Governmnet’s top legislative body, the standing committee of the National People's Congress, announced a RMB 10 trillion program to refinance local government debt. Policymakers also raised the local government debt ceiling to RMB 35.52 trillion from RMB 29.52 trillion, marking the first midyear increase since 2015. Finance Minister Lan Fo’an pledged a "more forceful" fiscal policy in 2025 to support growth, though he did not provide further details.

Equity Markets

• US: Most major benchmarks hit record highs as investors bet that a Republican sweep—securing the White House, Senate, and retaining the House—would drive faster earnings growth, looser regulations, and lower corporate taxes. Stocks climbed to close out their strongest week of 2024. with the S&P 500 reaching its 50th record of the year, briefly surpassing the 6,000 level before retreating to close slightly below those levels and ending the week up 4.7%. The Nasdaq rose nearly 6%, while the Dow also climbed 4.7% and, similar to the S&P ,briefly surpassed the important mark of 44,000 before retracing below.

• On the day Trump declared victory, US equity funds saw an impressive $20 billion inflow—the highest in five months. Small-cap stocks, anticipated to gain from Trump’s tariff threats, received the largest inflows since March, although economists caution that these tariffs, if implemented, could ultimately impact the US economy by hundreds of billions of dollars.

• Additionally, following Tuesday’s election, the Cboe Volatility Index, a measure of expected short-term U.S. stock market volatility, dropped 31% for the week, reaching its lowest level in over three months.

• Japan: Stock markets rose over the week, with the Nikkei 225 gaining 2.6% to 39500 and the broader TOPIX Index up 3% to 2742. Investor risk appetite was buoyed by the U.S. presidential election outcome and the Federal Reserve’s rate cut overshadowing Japan's corporate earnings season, which saw some company guidance downgrades and the negative impact of yen strength on export-heavy industries.

• Crypto: As Trump positioned himself as a pro-crypto president during election campaign, Bitcoin’s price surged past $80,000 on Sunday, hitting a new record and extending its recent rally. This rise follows a recent low of just below $61,000 on October 10 and marks a substantial increase from around $42,000 at the start of 2024.

Commodity Markets

• Oil: Brent crude oil prices has declined by 0.4% this week as concerns about prolonged supply disruptions from a strong hurricane in the U.S. Gulf of Mexico eased, and China’s latest economic stimulus packages failed to impress traders. Trump is set to ramp up U.S. oil production even more, and with a current market surplus and OPEC extending output cuts by another month until the end of December, prices are likely to be capped.

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