Elections and the Fed may continue as market movers for awhile – Noor Capital

Last week was pivotal to financial markets because of the US presidential election results and the Federal Reserve’s interest rate decision. This confluence of events has the potential to significantly shape the trajectory of global asset prices and market trends for years to come. Given the far-reaching political and economic implications of these developments, their impact extends beyond the US economy to all major economies worldwide.

Trump’s comeback

Donald Trump has been declared the winner of the 2024 US presidential election after clinching the presidential race in several swing states. The Republicans were able to win the majority of the US Senate seats after seizing most of the seats that were controlled by the Democrats in West Virginia and Ohio states.

But neither party has made clear progress in the battle for control of the House of Representatives where the Republicans currently have a slim majority, which keeps the legislative council in limbo after both parties failed to achieve a majority.

Trump’s economic policies are based on imposing more tariffs and adopting more tax cuts for families and businesses, which makes these policies business-friendly, and therefore many see them as good for the US economy.

The Trump administration is expected to exaggerate in adopting more reforms as an extension of previous reforms that have already become US laws. The new administration is also expected to further cut the corporate tax rate from 21% to 15%, making the United States one of the lowest-taxed countries for corporations in the world.

Fed is less confident

The rate cut decision came in line with expectations after FOMC announced trimming rates by 25 bps to bring the target rate to 4.50 – 4.75%. The decision side by side with Fed’s chair Jerome Powell was behind the Dollar slump on one hand, and Wall Street shares as well as gold futures rising on the other.

The amount of cut itself is a message that says that despite the strong kick-off of the easing cycle, the Fed is going ahead in cutting rates, but at a slower pace.

Fed’s statement stressed that there were participants in the meeting who voted for the second cut in four years anonymously unlike the previous cut whose decision was opposed by FOMC members, which was unprecedented since 2005.

Although the Fed sees that there is progress in inflation towards the official target amid cooling labour market conditions, the statement added that “the Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate”, which refers to deleting “more confidence”, which was included in the previous statement.

Deleting the phrase referred to less confidence on the part of the central bank in economic conditions. However, Jerome Powell said the absence of those two words has no implications.

There was also an important message sent by Powell – when he spoke about whether he would continue in his job after Trump’s win – when he confirmed that he would stay until the end of his term as a chair of the central bank. As he is in charge until May 2026, investors are expecting Powell to keep on cutting rates whatever potential verbal interruptions by Trump are. He also assured that he would refuse to leave office if Trump asked him to do so.

Dollar, Wall Street shares, and gold

Market reaction to the great events of the last week differed from one traded asset to another as the effects of the US elections and the Fed’s rate cut decision were not identical.

The greenback notched up after confidence increased in the future of the economy amid expectations of improvement in both US growth and inflation because of Trump’s economic policies. The dollar ignored the shock of the second rate cut from the Fed, which is suggested to pull the currency out of high-yield assets.

Wall Street shares had a strong push in the uptrend by both the results of the presidential elections and the Fed’s rate cut. The results pushed US stock higher due to the same reasons that took the dollar to the upside.

Gold was hardly hit by the surge in the US dollar because of the negative correlation between them.

The new week

Throughout this trading week, there are a number of market movers. They are certainly not of the same importance as last week’s events, but they are expected to steer price action.

Markets are waiting for CPI and PPI data for more evidence on the downtrend taken by inflation throughout last months.

The UK also is expecting growth data to show a rise of 0.1% as well as jobs data which has a strong role to play in drawing the line that will be followed by BoE monetary policy.

We also expect volatility that may persist amid attempts from the part of  investors to figure out the potential effects of Trump’s policies on financial markets.  

Last Updated on 1 month by News Desk 1