After the surprising return of Donald Trump to the White House, the markets are experiencing a period of euphoria. Wall Street, Bitcoin, and the US dollar have all seen significant gains. Treasury yields have also surged, indicating a shift in expectations regarding interest rates.
With Trump’s promises of lower taxes and higher tariffs, there is speculation that these policies could lead to increased prices by boosting domestic demand and raising import costs. This could result in the Federal Reserve maintaining a more restrictive monetary policy for a longer period than previously anticipated.
The upcoming release of the October CPI report will be crucial in determining the impact of the ‘Trump trade’ on rate cut bets. The CPI rate is expected to have edged up in October, with core CPI also forecast to increase. If the data surprises to the upside, the US dollar’s bullish run may continue, potentially posing challenges for Wall Street.
In the UK, the government’s tax and spend budget has led to a rise in yields on government gilts. Despite tax hikes, increased spending is expected to boost GDP growth in the current fiscal year. The Bank of England will be closely monitoring the impact of the budget on economic projections, with wage growth and GDP stats being key indicators to watch.
The eurozone outlook remains gloomy compared to other major economies, with the euro under pressure. Germany’s ZEW economic sentiment survey and political developments could influence the euro’s performance. Meanwhile, Japanese GDP data will be closely watched to determine the timing of the Bank of Japan’s next rate hike.
In Australia and New Zealand, domestic indicators will be important for the Australian dollar and New Zealand dollar. Chinese data on CPI, PPI, industrial output, and retail sales will also be crucial for the antipodean currencies and risk assets. Despite increased stimulus measures in China, there is still uncertainty about the pace of economic recovery.
Overall, the markets are experiencing volatility as they assess the impact of Trump’s return and other key economic data releases. Investors will be closely monitoring upcoming reports to gauge the future direction of interest rates and currency movements.
