Donald Trump’s unexpected clean-sweep victory in the year’s most awaited U.S. Presidential election has had a significant impact on the U.S. dollar, which has surged against a basket of currencies in recent weeks.
Already lifted to record highs by the quick and decisive US presidential election results and the prospect of President-elect Donald Trump’s promised tax cuts, the S&P500’s 26% year-to-date gains are the biggest by this point in the year in almost three decades. Both the S&P 500 and the Nasdaq Composite have returned over 5% for the month. Among equity indices, small-cap stocks, represented by the Russell 2000, have been the biggest winners, soaring more than 11% in November. Bitcoin has also experienced a notable surge, climbing over 40% since Trump’s victory, with its year-to-date gains surpassing 100%.
The Federal Reserve has bolstered the post-election stock rally with its second quarter-point interest rate cut this month, signaling potential further reductions. All twelve voting policymakers supported lowering the benchmark rate to a target range of 4.5% to 4.75%. The U.S. annual core inflation rate reached a three-month high of 3.3% in October 2024, unchanged from September and in line with forecasts.
With President-elect Trump preparing to implement tax cuts and increase tariffs, U.S. inflation is expected to remain above 2% throughout 2025, according to forecasts compiled by Consensus Economics. Earlier this week, Trump announced plans to impose additional tariffs of 10% on all goods from China and 25% on goods from Canada and Mexico set to take effect when he assumes office on January 20, 2025. These tariffs would terminate the free trade agreement with North American neighbors that Trump negotiated during his first term and are likely to provoke retaliation from Beijing. Amid heightened inflation concerns, the yield on the U.S. two-year Treasury, which closely tracks interest rate expectations, rose to 4.4% at the end of last week, up from 3.6% at the start of the month.
In the Eurozone, the Stoxx 600 index delivered a modest return of 0.6% for the month. Rising economic, trade, and geopolitical concerns were highlighted by a recent German business survey, which revealed a sharper-than-expected decline in business sentiment in November. The S&P Global Composite Output Flash Purchasing Managers’ Index (PMI) for the Eurozone fell from 50.0 in October to 48.1 in November, reaching a ten-month low. Annual inflation in the Eurozone accelerated to 2% in October 2024, up from 1.7% in September.
As pressure mounts on the European Central Bank (ECB) to maintain accommodative monetary policy, speculation grows that the ECB may cut rates by up to 50 basis points at its final policy meeting of the year. Despite more optimistic inflation projections, the ECB emphasized the need for further data before making any policy changes. Policymakers stressed that any decision regarding rate cuts would depend on the economic outlook and additional evidence of inflationary pressures subsiding, signaling a cautious and data-driven approach. ECB policymaker Mario Centeno cautioned that the Eurozone must be vigilant against inflation falling below the ECB’s 2% target, particularly amid rising economic risks such as potential new U.S. trade tariffs, which he noted would not bode well for Europe.
In November, the Euro fell over 3% against the U.S. dollar, weighed down by concerns over universal tariffs, potential hits to Chinese demand, and an unfolding political crisis in Germany that could lead to snap elections early in 2025.
The UK’s FTSE 100 gained 1.8% in November. Following the Federal Reserve’s dovish stance, the Bank of England (BoE) also reduced its interest rate by a quarter point to 4.75% as anticipated. Sterling and gilt yields rose last week after a slightly higher-than-expected British inflation report for October. While this was partly driven by shifts in regulated energy prices, it is likely to reinforce the BoE’s cautious approach to further rate cuts, with markets now not expecting another quarter-point rate reduction until March. UK consumer price index (CPI) inflation rose from 1.7% year-on-year (YoY) in September to 2.3% YoY in October.
The Chinese Yuan depreciated by 1.8% against the U.S. dollar in November, reaching its weakest point in four months. The decline follows Trump’s announcement of his intention to impose additional 10% tariffs on Chinese goods. The market response to China’s latest stimulus, a 10 trillion Yuan ($1.4 trillion) package aimed at easing local government “hidden debt” burdens, was underwhelming, especially given the concerns about U.S. tariffs. Chinese markets were in the red for most of November, but there was a slight recovery this week on expectations that Beijing will introduce more supportive policies to mitigate the impact of U.S. tariffs and stimulate the sluggish Chinese economy.
China’s consumer prices rose at the slowest pace in four months, increasing just 0.3% year-on-year in October, while producer price deflation deepened, reaching a 2.9% year-on-year contraction. This marked the 25th consecutive month of producer deflation, reflecting persistent weakness in domestic demand despite ongoing efforts by Beijing to address the issue.
In Japan, both the Nikkei 225 and TOPIX indices saw gains of around 1% in November. Japanese CPI inflation eased from 2.5% year-on-year in September to 2.3% in October. Core CPI, which excludes fresh food but includes energy prices, declined slightly from 2.4% to 2.3%. With underlying inflationary pressures remaining above the BoJ’s 2% target, markets are assigning a 58% probability of a rate increase at the Bank of Japan’s meeting on December 19. Japan is also considering a new stimulus package worth 13.9 trillion Yen to help households cope with rising prices. This spending proposal exceeds last year’s 13.2 trillion Yen allocation and would further strain Japan’s public finances, which are already burdened by debt that is twice the size of its economy.
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The views and opinions expressed should not be construed as investment or financial advice. The information contained is for educational purposes only.