Good morning,
Putin’s recent praise for Trump’s “courageous” handling of an assassination scare during the US election campaign seems as carefully crafted as any campaign slogan. Putin’s words, lauding Trump’s “correct” and “manly” response to the ordeal, read like an invitation for dialogue—a gesture unsettling to Kyiv and beyond. With Putin now hinting at diplomatic readiness, all eyes turn to Trump’s next steps. Could his promises to swiftly “end” the Ukraine conflict mean pressuring Kyiv to make concessions? NATO allies are likely holding their breath, waiting to see if Trump’s moves align more with flattery or action.
Last Week
Donald Trump’s election victory has given stock markets a boost, with the S&P 500 climbing 0.7% following a Fed decision, and on track for its best week in a year. Investors are betting on bigger corporate profits under Trump, but economists warn his policies—particularly on tariffs and immigration—risk higher inflation and slower growth. The so-called “sugar rush” may be short-lived if inflation expectations push the Fed to hold rates high for longer. Meanwhile, the dollar surged, with Goldman Sachs eyeing EURUSD parity by mid-2025. Japan has also flagged intervention, as Asian currencies slide against the resurgent greenback.
The Federal Reserve cut its benchmark rate by 0.25% on Thursday, bringing it down to a target range of 4.5%-4.75%. Fed Chair Jay Powell defended the decision, noting the resilience of the US economy while pointing to recent labour market slowdowns as a reason for easing at a measured pace, down from September’s 0.5% cut. Powell fielded numerous questions on his future as Trump, a frequent critic, is expected to attempt replacing him with a more policy-aligned successor. Trump’s agenda, prioritising lower rates to boost growth and investment, could clash with Powell if inflation concerns prompt a more hawkish Fed response in the months ahead.
The Bank of England joined the Fed in cutting its rate by 0.25% on Thursday, bringing it to 4.75%, as Governor Andrew Bailey addressed the uncertainties surrounding a new Trump administration and potential global tariffs. Domestically, Bailey highlighted that the UK’s recent budget, with a hefty £70 billion spending boost, is likely to keep inflation higher for longer, despite the rate cut. This focus on stabilising the economy could lend long-term support to the pound, especially against the euro, as the ECB maintains a more aggressive approach to rate cuts. With UK borrowing costs expected to remain elevated, sterling may gain traction as a more attractive option among G10 currencies.
This Week
With Donald Trump back in the White House, market euphoria has sent Wall Street and Bitcoin to new heights, while the US dollar hit a 4-month high. The sharp rise in Treasury yields signals a shift as investors trim expectations for Fed rate cuts over the next few years. Trump’s promises of tax cuts and higher tariffs are expected to boost inflation, limiting the Fed’s ability to ease policy anytime soon. All eyes are now on Wednesday’s CPI data, which could set the tone for further dollar gains or a cooling of recent momentum. Forecasts suggest headline CPI will edge up to 2.5% y/y, with core inflation also climbing slightly. Any inflation surprises will likely add fuel to the dollar’s rally, while Wall Street could feel the pressure from elevated yields.
The pound’s recent slide may find some relief this week, as UK data releases hold potential to shift sentiment. With the new Labour government’s tax-heavy budget increasing borrowing demands and driving the 10-year gilt yield higher, markets have tempered hopes for swift Bank of England rate cuts. Tuesday’s wage growth and employment figures will provide insight into the health of the labour market, followed by Friday’s third-quarter GDP estimate, expected to show a modest 0.2% growth. Stronger-than-anticipated data could give sterling a much-needed lift, stabilising it against the dollar. Conversely, disappointing results may deepen the pound’s losses, with a fall below $1.29 possible if UK economic concerns persist.
Key Events
Monday November 11th
02:00 New Zealand Inflation Expectations
Tuesday November 12th
07:00 UK Claimant Count Change
Wednesday November 13th
00:30 Australia Wage Price Index
13:30 US Core CPI
23:00 Gov Bullock Speaks
Thursday November 14th
00:30 Australian Unemployment Rate
13:30 US PPI & Unemployment Claims
20:00 Fed Chair Powell Speaks
21:00 Gov Bailey Speaks
Friday November 15th
07:00 UK GDP
13:30 US Retail Sales
Have a great week,
The Garton team.