Following the bond sell off’s last week after the Chancellor’s Autumn budget, the Pound has managed to steady itself going into the new week, as it seems Gilt investors are convinced of the Government’s spending plans- how this plays out over coming months is still unknown but for now it looks like the dust has settled from a bonds perspective- going into this week we have a few major events which should give us a relatively volatile week on the market.
Without question- the most important event this week is the U.S. presidential election on Tuesday (Nov 5th)- it is unlikely we will have a result that day so we will be looking for a result on this on Wednesday, right now polls are still showing a Trump lead, but as we all know, these opinion polls don’t count for much when the real one is a matter of days away, the general consensus is a Trump win is positive for the Dollar and a Harris win is negative for the Dollar- I am personally unsure if this is what the market will do, either way be prepared for a lot of volatility over the coming days as there wont be a decisive mood on the markets, both FX and stocks until the final result is in. The biggest issue is the swing states where Trump is currently marginally ahead, so this is going to be a hard election to call- but either way, the FX market will price in a winner by the 6th, and this will be seen in AUD, NZD and MXN, not so much in GBP & EUR.
The next big event is the Fed interest rate decision Wednesday, after Friday’s jobs report showed the US Labor market is definitely cooling, of course this particular NFP number was hugely affected by the recent hurricanes and the Boeing strike, overall the jobs market is deinitely not as active as it was earlier in the year- and this is now something the Fed will need to factor in. Of course, the result of the election will have an impact on the Fed’s plans and who the Fed chair will be, but for now we are expecting a 25bps cut in November, and potentially another in December, another 50bps cut would shock the market and I don’t believe this is something the Fed will be looking to do, so it should be a pretty stable announcement without much volatility.
On Thursday we have the Bank of England interest rate decision, and following Governor Bailey’s recent comments about the MPC now being able to be a little more aggresive with rate cuts, which has pretty much nailed on a 25bps cut for November, with a potential expectation for the same in December, after the Government’s budget now being released the BoE will have to also consider the Government’s spending plans with adjusting interest rates, to not cause any issues with yields.
If you have any questions about the events this week please don’t hesitate to contact me.