U.S. Election Reaction Sharing Spotlight with Central Banks – Currency Thoughts
U.S. Election Reaction Sharing Spotlight with Central Banks
November 7, 2024
The Federal Reserve, which is expected to cut its interest rate target today by 25 basis points, is but one of several central banks in today’s news. Meanwhile, the Central Bank of Brazil’s Selic rate was lifted late yesterday by 50 basis points. The Bank of England’s base rate has been cut today by an as-expected 25 basis points, and the Swedish Riksbank policy rate was cut earlier today by 50 basis points, and officials at the Bank of Norway and National Bank of Serbia today decided to leave their respective rates unchanged. Analysts correctly anticipated each of these already-announced decisions, so no surprise there.
The breadth of the Republican win in the U.S. election has been a huge surprise and has elicited a big reaction from financial markets. Trump has 295 declared electoral college votes and appears likely to end up with 312, the most since Obama. Republicans will control at least 52 seats in the Senate, two more than needed to control that chamber, and could build on that total as four seats still haven’t been declared. Likewise, Republicans lead the score in declared house seats so far — 206 to 191 — and appear likely to pick up the at least 12 more, which would be needed to control that chamber as well. There will also be more Republican state governors (27) than Democrats (23).
Yesterday’s sizable and broadly based dollar appreciation was trimmed only fractionally overnight, with dips of 0.3% against the yen and Canadian currency and of 0.2% relative to the Chinese yuan and euro. U.S. stock futures have marginally extended Wednesday’s historic advance. Share prices in China, Hong Kong, and Singapore closed today at least 2.0% higher, but declines were seen of 1.9% in Indonesia, 1.0% in India and 0.3% in Japan.
Investors, but not many economists, are hopeful regarding growth in a second Trump spin as president. Wider agreement concerns the likelihood of an even larger fiscal deficit-to-GDP imbalance. The 4.46% intra-day high of the 10-year U.S. treasury yield compares with 4.0% as recently as mid-October. In Europe, 10-year sovereign debt yields are up so far today by 8-9 basis points in Euroland’s four largest members but down by two basis points in Great Britain. The 10-year Japanese JGB yield firmed three bps today as concerns continue to swirl that officials there might undertake intervention to counter the yen’s decline.
Prices for oil, Bitcoin and gold have slipped today so far by 1.2%, 1.0% and 0.2%.
On today’s data-release menu, investors already received news that
- Euroland retail sales volume rose 0.5% on month and 2.9% on year in September and also 0.9% on average between the second and third quarters.
- German industrial production sank by a greater-than-forecast 2.5% in September and 2.2% in the third quarter.
- China’s trade surplus widened 17% on month and 70% on year to a four-month high of $95.3 billion last month.
- Euroland’s construction sector is experiencing a fairly pronounced recession, but the rate of decline was its slowest in 10 months, as attested by the region’s construction purchasing managers index of 43.0 in October.
- The British Halifax house price gauge was only 3.9% higher in October than a year earlier, its slowest rate of rise since June.
- Ireland and Cyprus posted similarly low 0.6% and 0.7% rates of consumer price inflation last month, their lowest since March 2021.
- Real GDP in the Philippines climbed 1.7% on quarter but at the lowest on-year pace (5.2%) in five quarters.
Brazil’s 50-basis point central bank interest rate hike to 11.25% followed an initial 25-bp hike in September that interrupted an earlier cycle of cuts totaling 300 basis points between August 2023 and June 2024. A statement from officials expresses concern of service sector costs, de-anchored price expectations, and the risk of currency depreciation. Brazilian CPI inflation of 4.4% in September was close to the target range ceiling and not projected below 4.0% next year.
The Bank of England’s 25-basis point base rate cut to 4.75% was favored by 8 of 9 committee members, with Catherine Mann dissenting with a vote of no change. This was the second 25-basis point reduction since August and follows a whole year in which the rate stayed at a peak 5.25%. British CPI inflation has slowed to a 41-month low of 1.7% but faces a likely rise toward 2.5% due to base effects this quarter. A released statement contends that period of economic slack may be required to normalize pay and price-setting dynamics fully and therefore defends a cautious approach to lessening the extent of monetary policy restraint.
In Sweden, real GDP fell by 0.3% and then 0.1% more in the second and third quarters of this year. That’s weaker than monetary officials had assumed. In conjunction with sub-target inflation of 1.6% in both September and October, a stepped up pace of interest rate reduction was deemed appropriate, according to a released statement. “the policy rate may also be cut in December and during the first half of 2025.” Several risks continue to be monitored, however, such as geopolitical tensions, the economic policy abroad, an the krona exchange rate. Today’s Riksbank rate cut of 50 basis points to 2.75% was the largest reduction since February 2009 and follows a trio of 25-bp cuts earlier this year in May, August and September.
The Bank of Norway‘s policy interest rate has been at 4.5% since a 25-basis point hike last December that culminated 175 basis points in the year after increases in 2022 totaling 225 basis points. In a released statement, officials defend keeping the peak interest rate for a little longer despite a 3.0% on-year CPI inflation rate posted in September. “The krone depreciation in recent years and the rapid rise in business costs are likely to restrain further disinflation. The Committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon.”
At the National Bank of Serbia, officials also failed to cut their 5.75% interest rate, but in their case three 25-basis point cuts had already been administered in June, July and September. “It is necessary to continue to pursue a cautious and restrictive monetary policy given somewhat greater resilience of inflationary pressures – notably core inflation, and in light of the unpredictable developments in the international environment, mounting geopolitical risks and their impact on global prices of energy and other primary commodities.”
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England, Bank of Norway, Central Bank of Brazil, Euroland retail sales, National Bank of Serbia, Swedish Riksbank
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