• The week ahead: UK jobs data on Tuesday (wage growth expected to slow to 4.7%; unemployment rate steady at 4%), US CPI Inflation on Wednesday (headline inflation projected at 2.6%, core at 3.3%), and UK GDP results on Friday (Q3 growth expected at 0.2%, down from 0.5% in Q2).

Markets last week

Trump

Trump is now set to become the second US president to serve two non-consecutive terms, following Democrat Grover Cleveland, who won his second in 1893. In last month’s US election analysis, ‘Two Bowls of Poison or a Formula for Progress?’, I noted that a Trump victory could imply ‘a better environment for equities’, though bonds might face challenges. This view aligns with the market’s reaction to Trump’s decisive win and the likely Republican control of Congress (with the party winning the Senate and the House race now leaning towards Republican victory). US equities surged 4.9% to new highs, and although bond yields fell over the week due to a 25bps rate cut, bond markets initially reacted negatively.

Trump’s tax cuts and deregulatory agenda are seen as a boost for US growth and corporate profits. While the global impact remains uncertain, many believe Trump 2.0 will benefit the US, though his protectionist policies – especially trade tariffs – could weigh on the rest of the world. This dynamic was reflected in the equity markets, with UK and European stocks trending lower over the week.

The Fed rate cut

The Fed meeting on Thursday seemed especially uneventful following the excitement of the US election. There were no surprises by the 0.25% rate cut to a target range of 4.5%-4.75%. One subtle change in the policy statement was the removal of the phrase ‘gained greater confidence’ regarding future decline in inflation. This points to a potentially less dovish Fed and could indicate increased uncertainty following the election.

Chairman Powell was circumspect when asked about the implications of Trump’s policies on the economy and the path for interest rates, stating that it was not the Fed’s duty to speculate on policies but to react as they were implemented. Powell was also asked whether he would resign if Trump asked him to, to which he simply replied, “No.” The market reaction was muted, reflecting the anticipated nature of the rate cut and Powell’s steady hand at the helm.

The Bank of England

The BoEs MPC voted 8-1 to cut rates by 0.25% to 4.75%, as was widely anticipated. The decision supports their core message of a gradual pace for rate cuts. Expectations for interest rates at the end of 2025 have risen primarily due to the additional fiscal loosening in the Budget but the MPC’s medium-term inflation forecast suggests rates may fall faster than current market pricing implies.

The new inflation forecast was adjusted lower in the short term due to softer recent data but higher from mid-2025 onwards, again largely due to the impact of the Budget. BoE Governor Andrew Bailey maintained that the medium-term outlook for rates is uncertain. Bond yields were stable with the 10-year yield closing at 4.44%, significantly higher than the 3.74% low in September.

The week ahead

Wednesday: US CPI Inflation

Our thoughts: Month-on-month inflation is expected to remain steady. Year-on-year, headline inflation is projected to rise to 2.6%, while core inflation is anticipated to hold steady at 3.3%. Despite persistent inflationary pressures, we observe underlying disinflationary trends, which should keep the Fed on course for another rate cut in their December meeting.

Friday: UK GDP

Our thoughts: Economists expect that the UK economy grew by a steady 0.2% in the third quarter, slowing from 0.5% in Q2. The slowdown may reflect lower government spending relative to the first half of the year.