Markets React to U.S. Election: Impact on Currencies, Commodities, and Rates (11 - 15 Nov)

Global markets reacted strongly to recent elections, with major shifts across currencies, commodities, and fixed income, highlighting heightened economic and geopolitical uncertainty.

Key Highlights:

Currencies: The dollar index closed the week on a positive note, bolstered by election results. The euro depreciated against the dollar, pressured by ongoing political uncertainty, below-target inflation, and Trump’s victory. Meanwhile, the pound finished in the red due to a recent rate cut, though it managed to close slightly above the previous week’s level due to an initial week-opening gap.
Commodities: Non-yielding assets faced losses over the week, driven by expectations that Trump’s election would lead the Fed to maintain high-interest rates in response to inflationary policies. Additionally, worries over Trump’s issues with China potentially harming the Chinese economy significantly pressured silver prices, as China is the largest importer.
Fixed Income: The yield on U.S. 10-year Treasuries jumped to 4.44% following the election results but retraced most of those gains by the week’s end. In contrast, 2-year Treasury yields closed the week in positive territory.

Macroeconomic Updates:

RBA Interest Rate Decision (Nov): In line with market predictions, the Reserve Bank of Australia (RBA) held its cash rate steady at 4.35% during the November meeting, marking the eighth consecutive pause. The RBA highlighted that while headline inflation has seen a notable decline and is expected to remain subdued, core inflation remains elevated. This suggests continued caution regarding inflation risks, with the board open to future actions. The central bank reaffirmed the need to maintain a restrictive monetary policy stance until inflation shows a sustainable path toward the target. On household spending, the RBA observed a Q3 uptick, though it cautioned that any further rebound could be slower than expected, potentially leading to weaker growth and a softer labor market. The interest rate on Exchange Settlement balances remained at 4.25%.
S&P Global Services PMI (Oct): U.S. service providers reported strong business growth as the year’s final quarter began, with new orders increasing at a stable pace compared to September. Business activity expectations improved from September’s 23-month low, although companies remained cautious and marginally reduced staffing levels amid demand uncertainties. The S&P Global U.S. Services PMI® Business Activity Index indicated sustained growth in October, dipping slightly to 55.0 from 55.2 in September, marking 21 months of consecutive activity growth. Companies noted a sixth month of increased new orders, though export orders slowed due to weak international demand.
ISM Non-Manufacturing PMI (Oct): The Services PMI® reached 56% in October, up 1.1 points from September’s 54.9%. This was the eighth instance this year where the index remained in expansion.
BoE Interest Rate Decision (Nov): The Bank of England lowered its Bank Rate by 25 basis points to 4.75% at its November meeting, marking the second rate reduction in four years since August’s rate-cut cycle began. Eight of nine MPC members supported the cut, slightly exceeding expectations of seven votes, with Catherine Mann voting to hold rates.
Initial Jobless Claims: For the week ending November 2, seasonally adjusted initial jobless claims were 221,000, a 3,000 increase from the previous week’s revised figure of 218,000. The four-week moving average dropped by 9,750 to 227,250, compared to the prior week's adjusted average of 236,500.
Fed Interest Rate Decision: In its November 2024 meeting, the Federal Reserve lowered the federal funds target range by 25 basis points to 4.5%-4.75%, following a prior 50-basis-point cut in September, aligning with expectations. Fed Chair Jerome Powell highlighted that decisions will be data-driven on a meeting-by-meeting basis, suggesting a possible pause in rate cuts for December, but keeping options open. He emphasized that the Fed’s approach is unaffected by Trump’s election win, focusing solely on economic data.

Currencies & Commodities

The euro depreciated against the U.S. dollar as Eurozone concerns deepened with Trump’s election win and political uncertainty in Germany. The Japanese yen ended the week relatively stable against the U.S. dollar, with BoJ minutes revealing a consensus to continue rate hikes, while strong wage data and global uncertainties left rate hike prospects uncertain. The British pound closed lower against the U.S. dollar after a 25-basis-point rate cut from the BoE, with 8 of 9 members backing the decision. The Labour Party’s expansionary budget also raised inflation expectations. The Chinese yuan weakened against the U.S. dollar, prompting the Chinese government to announce a 10 trillion yuan stimulus package in response. The Australian dollar was steady against the U.S. dollar, balancing hawkish RBA signals and China’s stimulus plans against the influence of Trump’s victory.

Precious metals faced downward pressure, with Trump’s re-election fostering expectations of inflationary policies that boosted the 10-year Treasury yield and the dollar index. Concerns over strained U.S.-China relations added to fears that China’s economy and exports would struggle, impacting silver prices, as China is a major importer. Consequently, gold and silver both ended the week weaker against the U.S. dollar.

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