All news
Introduction to the opening of the week
Next week we have two important events. The US elections are on November 5th and the Federal Reserve meeting is on November 7th.
The most important thing is the US elections. Because he will determine America's financial, trade and international policies for four years (or at least two years until the next congressional elections).
In my November opening remarks, I outlined my thoughts on the implications for financial markets of a Harris or Trump victory on Friday, regardless of whether they control the House or Senate. There are potential lawsuits, recounts, and protests (especially if Harris wins). The announcement of final results could be delayed for a week until the electoral college votes on December 17.
November What should I pay attention to besides what was explained in the introduction?
Harris wins.
If Harris wins, the most important thing is Trump protests and the possibility of civil war, so it has a positive effect on the markets (the dollar falls, US Treasuries rise, stock markets rise, if Harris loses control of both houses of Congress) can be delayed. The first reaction will be correct, and it will enter a trend when it rolls back during the Trump protests and Trump's claims are leveled.
If Republicans win both the House and Senate, the pause in Harris's winning streak would be particularly long, a possibility that cannot be ruled out, and Trump's complaints about voter fraud in Harris' favor would have more substance.
Trump's victory.
Obama calls for protests if Trump wins, but these threats say little about the danger of this trend.
If Trump wins, it will be important to secure Congress. Otherwise, current rhetoric suggests that Trump will not be able to cut taxes (or extend the 2017 tax cuts beyond 2025) or raise tariffs. A commitment to raise tariffs on goods from other countries would need to be passed through reciprocal trade laws, which means a vote in Congress.
Trump could try to raise tariffs on goods from other countries through the National Security Act, but that would require negotiations and public opinion, and he couldn't raise all tariffs on goods from a particular country through that backdoor.
The US Constitution defines taxes, tariffs, etc. Only Congress can do it, meaning that without Congress, Trump's rhetoric could change before he even takes office.
Without Congress, if Trump can't follow through on his threats of massive tariff hikes and steep tax cuts, he can focus on solving geopolitical problems, and that could be a good thing.
Many banks say Trump's policy of raising and lowering tariffs will lead to a sharp rise in inflation, meaning the Federal Reserve will have to raise interest rates.
First, it's important to remember that Trump's second priority after raising tariffs is to lower interest rates at the Federal Reserve.
Trump is a real estate developer by trade, and that sector is very sensitive to Fed rates, so his targets are low Fed rates and low yields on US Treasuries (as is Harris, because the current cost of servicing US government debt is high). , included in the IMF's list of needy countries.
Trump will get low Federal Reserve interest rates one way or another, and the question is whether he will establish a friendly relationship with current Federal Reserve Chairman Powell or through the Federal Reserve Chairman after May 15, 2026, when Powell's term ends.
In the past, Trump proved to Powell that the Fed was wrong on interest rates, and Powell cut interest rates, initiated recession-free quantitative easing to lower Treasury yields, and even reset the Fed's priorities to prioritize the labor market. I did that.
Second, Trump's plan to raise and lower tariffs will certainly take time on taxes and tariffs if he gets Congress to pass a reciprocal trade law.
The US President is inaugurated on January 20, 2025, before which he will negotiate tariffs with other countries, but will not raise them. This could lead to a three-month recession in the US economy, and it would be inappropriate for the Fed to do nothing. Inflation and a slowing labor market.
Congress is unlikely to pass new tax and trade legislation before the U.S. economy collapses into the abyss within 10 months if current Fed interest rates remain in place.
Thirdly, the bank’s forecasts on the dynamics of specific products are only valid before the elections.
I remember very well 2016, when Trump said he wanted a cheap dollar, and all the banks wrote that the dollar would collapse if Trump won. But the moment Trump's victory became obvious, the dollar began to grow for the second time. It was fast and lasted for a long time.
So if Trump wins, don't believe everything, even if the storm turns out to be childish.
Federal Reserve meeting.
Inflation is falling, with headline inflation in the Far East below the Fed's year-end forecast, and core inflation in the US Far East slightly above but very close to the Fed's year-end forecast.
The Federal Reserve now projects the unemployment rate at 4.1% by year-end, down from 4.4%, but there is no doubt the labor market will slow.
The Fed's goal is to quietly cut interest rates by 0.25% on November 7 and emphasize its reliance on data in making decisions at its December meeting.
If Harris wins, the Fed is more likely to do so. Because the Harris Fed's fiscal policy is clearer.
If Trump wins, the Fed could act like a horse, but it would be against all the rules. That's because market expectations for a rate cut in November are 95%.
A Trump victory would set up a personal duel between Trump and Powell, with markets and the economy held hostage unless the Fed can cut interest rates.
However, since the Fed emphasizes its apolitical nature, it is logical to expect interest rates to fall, even if it comes at a price.
But the Fed's Nov. 7 meeting is unlikely to be a big event for investors. If Harris wins, markets will be concerned about the risk of civil war, and if Trump wins, they will be concerned about his future policies.
The RBA is likely to keep interest rates on hold and any change in sentiment on how to proceed will be important, but Australia will also feel the impact of the US election and is unlikely to make any definitive comments.
The US ISM is important, but its release on US election day will not trigger a market reaction.
China's trade balance is interesting, but more important is the impact of the US election on China. If Trump wins, we should expect the Chinese Communist Party to launch new fiscal stimulus.
The Bank of England is expected to cut interest rates by 0.25% on Thursday. BoE Governor Bailey's comments on rising gold bond yields and possible bond market intervention will be interesting.
A major auction of US Treasuries is scheduled for Monday-Wednesday, but the results are unlikely to attract much attention except in the aftermath of the US election on Wednesday.
I'll leave the picture as is. The impact of the US election results on the eurodollar is quite obvious, and under Harris the growth will probably be higher.
According to the S&P500, both options are equivalent. History shows that post-election stock markets usually rise due to the end of uncertainty, but this time there may be an exception due to negative factors for Trump-related stocks. Harris, but much depends on the balance of power in Congress. A toothless Harris (without Congress) would be good for stocks at first, then a recession would come.
Key free agent developments next week:
- Monday:
The Chinese Communist Party plans to hold a fiscal stimulus meeting (depending on the US election results) from November 4 to 8.
Eurozone industrial PMI for October, second indicator.
Auction of 3-year US Treasury bonds.
- Tuesday:
China Services PMI according to Caixin.
RBA meeting, 6.30 Moscow time.
This is my second reading of the UK Services PMI for October.
ISM Services USA.
Auction of 10-year US Treasury bonds.
Elections in the USA.
- environment:
New Zealand Labour Market Report.
US election results (historical, approximately 8:00 Moscow time – 9:00 Moscow time).
Eurozone Service PMI for October, second indicator.
Auction of 30-year US Treasury bonds.
- Thursday:
China's trade balance.
The Bank of England will meet to decide on interest rates at 15:00 Moscow time.
US weekly jobless claims data blocked.
Fed meeting, interest rate decision 22:00 Moscow time.
Federal Reserve Chairman Powell's press conference at 10:30 p.m. Moscow time.
- Friday:
China's fiscal stimulus decision.
EU Leaders Meeting (Discussing the Implications of US Election Results)
Canada Labour Market Report.
Michigan Consumer Sentiment Survey