After last week’s American elections, Donald Trump will return to the White House with Republicans also likely controlling the Senate and the House of Representatives. This paves the way for sweeping changes in taxes, spending, trade tariffs, and immigration, although it's too early to say what the concrete changes will be.
Equity markets have responded positively, while the prospect of slower short-term interest rate cuts next year has so far capped longer-term bond yields.
The Federal Reserve was less nervous about rising unemployment but proceeded to cut rates despite higher anticipated inflation prints. The Swedish and British central banks also cut rates, while the RBA held policy unchanged.
Friday’s 10 trillion yuan Chinese fiscal stimulus package fell short of expectations.
The betting markets outperformed the pollsters as Donald Trump decisively won the American presidential election. He flipped all seven swing states of Pennsylvania, Michigan, Wisconsin, Georgia, North Carolina, Nevada, and Arizona, performing well enough to also unexpectedly win the national popular vote.
Several remarkable records were set with his win. He is the oldest person to be elected president, the first convicted felon, and the first twice-impeached former president. He will be only the second president to serve two non-consecutive terms after Grover Cleveland was re-elected in 1893.
In addition to winning the White House, the Republicans secured a majority in the Senate and seem likely to add a majority in the House. With the support of Congress, Trump will have relatively little difficulty passing legislative reforms. Trump’s particular style makes it difficult to discern which changes will actually be passed. However, the new regime will likely favour tax and government spending cuts and attempt to tighten immigration controls.
Trump’s 2017 corporate tax reduction from 28% to 21% was due to expire at the end of 2025. They now seem very likely to be extended and equity markets have responded understandably favourably. The S&P500 (+4.7%), Nasdaq Composite (+5.7%) and Russell 2000 small cap (+8.6%) indices all finished the week at record closing highs, with the S&P500 briefly crossing above the 6,000 mark for the first time on Friday.
Having promised to end the Russian war within days, he has reportedly had a call with President Zelensky of Ukraine and Elon Musk.
Musk, who supported Trump with his X media platform, benefits from several lucrative government contracts through companies such as SpaceX. Starlink also provides internet communication to Ukraine on behalf of the Pentagon. Shares in Tesla rose by +29.0% last week in anticipation of lower resistance to driverless taxis and other projects.
Bitcoin also rallied +12.5% to a new record high of US$ 77,750. Cryptocurrencies are expected to benefit from more favourable regulatory treatment as the president-elect recently launched his own cryptocurrency product.
However, Donald Trump will inherit a very different economy from the post-GFC recovery in 2016. This time, he starts with an economy that has emerged from a period of higher inflation, with a relatively low unemployment rate but decelerating momentum. Investors are also concerned that a combination of trade tariffs and restricted immigration could push up goods prices and wages, sparking another burst of inflation.
During the campaign, the president-elect suggested that a 60% tariff on products from China could be applied and a 10% to 20% tax on all other foreign goods. An article in the Washington Post highlighted several consumer goods companies are already preparing to pass on the threatened increase in tariffs, reporting, “We’re set to raise prices,” Timothy Boyle, chief executive of Columbia Sportswear, said in an interview. “We’re buying stuff today for delivery next fall. So we’re just going to deal with it and we’ll just raise the prices. … It’s going to be very, very difficult to keep products affordable for Americans.”
Due to be released this week, American October CPI and PPI inflation figures are expected to show an increase in annual inflation due to base effects. However, the ISM surveys also suggested renewed price pressure in supply chains, which tariffs would exacerbate.
In the Treasury market, 5yr breakeven inflation rates have risen from a low of 1.9% in September to 2.4% at Friday’s close. Government bond yields initially responded to the election result with a sharp rise, before falling back by the end of the week. Concerns over a larger deficit remain, but investors seem less concerned that a tariff-driven inflationary shock would lead to sustained higher inflation as expectations are still anchored near 2%.
On Thursday, the Federal Funds policy rate was lowered for the second consecutive FOMC meeting. The quarter-point decrease brought the target range to 4.50% to 4.75%, with the midpoint being roughly +0.28% higher than the current RBA cash rate of 4.35%.
At the press conference afterwards, Jerome Powell courted headlines by saying that he would not step down if the incoming president requested. He also said that the Federal Reserve would wait to respond to concrete legislative announcements rather than speculating on policy changes, adding that downside risks to the labour market had diminished since the last meeting. Nevertheless, market pricing of interest rates has moved to anticipate a slower path of rate cuts, with only a 60% chance of a third consecutive cut at the next meeting in December.
If short-term rates remain restrictive for longer, a one-off inflationary tariff shock shouldn’t evolve into persistent CPI increases. However, higher interest rates would also weigh on future growth. Even though the chances of a short-term rapid acceleration in unemployment might have receded, the global economy is still in a synchronised slowdown. The US is only the latest country to see the governing party ousted due to economic discontent. Last week, the German government also arrived at the brink of sudden collapse as Chancellor Scholz fired his finance minister, setting up a possible snap election.
Although tariffs pose inflationary risks, most developed central banks are still responding to slowing activity. Last week, the Bank of England cut rates by -0.25% for the second time since July to 4.75%. The Swedish Riksbank cut rates by -0.5% to 2.75%, the fourth cut since rates were at 4.0% in April. The central banks of the eurozone, Switzerland, Canada, and New Zealand are all expected to cut at their next meeting. The hawkish Bank of Japan and steady Norwegian and Australian central banks are comparative outliers in the G10.
After Tuesday’s RBA meeting, the governor reiterated that the Board would look past the temporary impact of the electricity subsidies and focus on returning inflation sustainably to the 2%-3% target. The forecasts were adjusted to reflect inflation meeting the midpoint of the range in mid-2026 after slightly slower growth in 2025. However, whether this was based on changes in the global economy or simply using a higher market-implied interest rate path in the models is unclear. Economists expect unemployment to remain at 4.1% in this Thursday’s release. In any event, the US election result and eagerly-awaited Chinese fiscal package imply that the longer-term forecasts are already out of date.
Chinese authorities had previously suggested that a Trump victory would likely result in a more substantial fiscal stimulus package. Announced on Friday, the 10 trillion yuan (US$1.4 trillion) in new bills will be used in a debt swap with local governments, allowing the latter to reduce hidden off-balance-sheet debts. However, the amount was universally viewed as a disappointment as it is unlikely to allow authorities to do much to support the ailing property market.
Over the weekend, CPI (+0.3% yoy) and PPI (-2.9% yoy) inflation data served to underline the weakness in the Chinese domestic economy. October trade figures also saw imports fall by -2.3% yoy. A surprisingly strong +12.7% yoy increase in exports was more positive but will soon be threatened by higher US tariffs. The monthly update of key activity data will be released on Friday.
With the American earnings season 90% complete, Bloomberg aggregates show S&P500 EPS up +7.1% over the last twelve months. Refer to this link for a full round up of earnings season.
In the Australian market, Westpac posted a -3% fall in net profit for the year, with outgoing chief executive Peter King saying that he leaves the bank in good shape.
In line with expectations, NAB reported an -8% fall in annual profit, upping the dividend by 1 cent to $0.85 per share, while ANZ cut the dividend after also reporting an -8% fall in annual cash earnings. Both banks reported rising loan arrears.
The Goodman Group share price traded -2.2% lower despite the company reiterating full-year guidance of a +9% increase in EPS.
Mineral Resources also reported that embattled managing director Chris Ellison would step down after it was found that he used company resources for personal benefit. Chairman James McClements will also leave next year. The share price fell by -5.3% last week following the announcement on Monday and has fallen by more than -60% since the high of $96.97 reached in January last year.
Significant Upcoming Data:
| Monday | Tuesday | Wednesday | Thursday | Friday |
Australia |
| NAB Bus. Cond.; Westpac Cons. Conf.
| Quarterly Wages | Employment; Cons. Infl. Expectation |
|
US | Veteran’s Day | NFIB Small Bus. Opt.; Federal Reserve Senior Loan Officer Survey; NY Fed. 1yr Infl. Exp.
| CPI; Monthly Budget Statement; MBA Mortgage Apps
| PPI; Weekly Jobless Claims
| Retail Sales; Ind. Prod.; Empire Manuf. Survey; Bus. Inventories
|
Europe | Danish & Norwegian CPI; Norwegian PPI; Danish & Finnish Curr. Acc.; [German WSale Price Index]; Swedish SEB House Price Ind.; Belgian Budget; Irish BNP RE Constr. PMI; Irish New Vehicle Licences;
| ZEW Survey; German & Dutch CPI; UK Unempl.; German Curr. Acc.; Swedish PES Unempl.
| EZ Ind. Prod.; French Unempl.
| EZ, Dutch & Finnish Q3 GDP; EZ Employment; Spanish, Swedish & Finnish CPI; Dutch Trade & Cons. Spending; UK RICS House Prices | EU Commission Econ. Forecasts; UK Q3 GDP, Ind. Prod., Service Index, Constr. Output & Trade; French & Italian CPI; Danish PPI; Swiss Prod. & Imp. Prices; Italian Trade & Gen. Govt. Debt; Swedish Unempl.; Norwegian & Irish Trade
|
Japan | Trade & BoP Curr. Acc.; Bank Lending; Eco. Watchers Survey
| M2 & M3 Money Stock; Machine Tool Orders | PPI |
| Q3 GDP; Ind. Prod.; Tertiary Ind. Index |
China | [M0 / M1 / M2 Money Supply; FDI]
|
|
|
| Ind. Prod.; Ret. Sales; Surveyed Jobless Rate; Fixed Asset Inv.; Property Inv.; Resi. Property Sales; [1yr Med. Term Lending Rate]
|
Companies reporting:
Tuesday: Home Depot (HD), Shopify (SHOP), Sea Limited (SEA)
Wednesday: Cisco (CSCO), Tower Semiconductor (TSEM), CyberArk Software (CYBR)
Thursday: Disney (DIS), Applied Materials (AMAT)
Friday: Alibaba (BABA), Spectrum Brands (SPB)
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