Weekly Outlook: US election, UK and US interest rate decisions

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04 November 2024

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Hannah Williford

Monday 4 November

Purchasing managers’ indices (PMIs) for manufacturing from the EU
US factory orders
In Europe, quarterly results from Ryanair and Kingspan
In the US, quarterly results from Vertex, Palantir, Zoetis, Constellation Energy, NXP Semiconductor, AIG, Illumina, BioNTech, Fox, Loews, Yum! China, New York Times and Lattice Semiconductor

Tuesday 5 November

Full-year results from ASOS and Smiths News
First-half results from TI Fluid Systems
BRC UK retail sales monitor
Interest rate decision from the Reserve Bank of Australia
Purchasing managers’ indices (PMI) for services industries in the UK and USA
US Presidential and Congressional Elections
In Japan, quarterly results from Nintendo
In the Middle East, quarterly results from Aramco
In Europe, quarterly results from Coca-Cola Europacific, Coloplast, Bayer, Ørsted, Uniper, Vestas Wind Systems, AIB, Fresenius Medical Care, Finecobank, Zalando and Hugo Boss
In the US, quarterly results from Ferrari, Thomson Reuters, Marathon Petroleum, Cummins, Microchip, Yum! Brands and Super Micro Computer
US election

The US will go to the polls on Tuesday, with the race to the White House currently on a knife edge.

Though market’s moved slightly towards pricing in a higher likelihood of a win for Republican nominee and former president Donald Trump, polls are currently extremely close in several key swing states.

“I continue to think the market is dramatically underestimating the ultimate impact of Trump’s policy proposals in a Republican Sweep scenario and it represents an enormous catalyst for bond markets given the combination of much higher budget deficits and more constrained supply (tariffs and immigration restrictions),” Michael Medeiros, macro strategist at Wellington Management, said.

“From a high level, my bias is the market prices fiscal easing in either sweep scenario (higher yields, most notably in the Republican Sweep given the proposals below), and prices fiscal drag in a Harris-Republican Senate scenario (tax increases à lower yields) since most of her spending proposals would be constrained by a Republican Senate. My structural 10 year framework continues to point to a level around ~6% over the next 12-24 months, and a Republican Sweep would be a critical catalyst for that since that framework is partly based on a deteriorating fiscal outlook and sustained elevated inflation.

“There is now a much clearer picture of what each candidate is proposing from a policy perspective, and the ultimate fiscal impact/cost. Both candidates stated plans would increase the deficit over the medium term, but Trump’s proposals are far worse from a deficit perspective.”

Wednesday 6 November

Full-year results from Dotdigital
First-half results from Lancashire
Trading statements from Persimmon, JD Wetherspoon, OSB and Domino’s Pizza
Purchasing managers’ index (PMI) for the construction industry in the UK
Purchasing managers’ indices (PMI) for services in the EU
US oil inventories
In Japan, quarterly results from Toyota Motor, Honda Motor and Kikkoman
In Europe, quarterly results from Novo Nordisk, ENEL, Unicredit, Siemens Healthineers, BMW, Credit Agricole, Henkel, Ahold Delhaize, Commerzbank, Fresenius, Pandora and Puma
In the US, quarterly results from Qualcomm, ARM, Gilead Sciences, CVS Health, Take-Two Interactive, Zillow and Lyft
Marks & Spencer first-half results

Marks & Spencer will produce its first half results on 6 November, amid a year of low consumer confidence throughout the UK.

While consumer confidence was down in both September and October, the Misery Index, which adds rates of inflation and unemployment, is far lower than past peaks. The index currently sits at 6.2, down from 14.9 in autumn 2022.

Russ Mould, AJ Bell investment director, Danni Hewson, AJ Bell head of financial analysis, and Dan Coatsworth, AJ Bell investment analyst, said: “Why consumers are therefore not feeling more confident remains a conundrum for politicians and central bankers alike, not to mention retailers, although the FTSE All-Share Retailers index trades fairly close to the highs of early 2022.

Currently, M&S shares are at an eight-year peak, and have tripled since October 2022. Earnings estimates have also risen consistently in the past 18 months.

Analysts expect total sales to be up 7% from a year ago, to £6.6bn for the first half. Pre-tax profit should be near £357m on an adjusted basis.

“The company is still targeting £500 million in overall cost efficiencies over the period from 2022 to 2026 and the pound’s advance against the dollar this year could bring some purchasing and sourcing benefits too,” the AJ Bell trio said.

“Double-digit percentage sales growth at the Ocado food joint venture is also helpful and could support performance there.”

Thursday 7 November

First-half results from National Grid, Auto Trader, IMI, Howden Joinery, Derwent London, Wood Group, Tate & Lyle and Burford Capital
Trading statements from Taylor Wimpey, Hiscox, Hikma Pharmaceuticals and ITV
Halifax UK house price index
Japanese wage growth
German industrial production
US weekly unemployment claims
In Japan, quarterly results from Nippon Stee, Nikon and Rohm
In Europe, quarterly results from MunichRe, Daimler Truck, Amadeus IT, Legrand, Rheinmetall, ArcelorMittal, Pirelli and Brembo
In the USA, quarterly results from Airbnb, CRH, Block, Hershey, Rockwell, Halliburton, Pinterest, Liberty Broadband, Tapestry and Rivian Automotive
Bank of England interest rate decision
US Federal Reserve interest rate decision

The Bank of England and the US Federal Reserve will announce their interest rate decisions on Thursday, as the US comes out of the election and the UK settles from last Wednesday’s budget announcement.

The Bank of England cut before the Fed on 1 August with a 25 basis point decrease, but the Fed cut by 50 basis points on 18 September.

Despite the decrease in interest rates from both central banks, both the ten-year gilt and ten-year US treasury yield have increased.

“The increase in UK yields is being laid at the door of the new Labour government and its tax-and-spend plans, fully revealed in the Budget on 30 October after a period whereby the bulk of the major policy plans were dribbled out,” Mould, Hewson, and Coatsworth said.

“Final publication came with an upgrade to both growth and inflation expectations from the Office for Budget Responsibility, something which may have also given the bond market pause for thought, while Chancellor Rachel Reeves also increased the amount of gilts the Debt Management Office is expected to sell in fiscal 2024-25 to £299 billion from £277 billion.”

Following the Budget, analysts now expect at 0.25% cut in November, but no cut in December, with three more cuts in 2025. Although a month ago markets were pricing in a rate of 3.5% by December 2025, this is now looking closer to 4%.

While yields have been on the mind of UK politicians, they have flown relatively under the radar in the US presidential debate.

“The rise in gilt yields has been lower in the UK than in the USA, where the issue of the national debt has started to become a matter of concern to holders of US Treasuries, not least because neither presidential candidate seems to have addressed the issue at all. Rachel Reeves’ honesty on the lack of money in the kitty (at least before tax increases) stands in stark contrast to the policies outlined thus far by both the Democrats’ Kamala Harris and the Republicans’ Donald Trump, which are expected to increase the annual and aggregate federal deficit by an ever-greater degree than the one already expected by the Congressional Budget Office,” Mould, Hewson, and Coatsworth said.

Although it is not clear what effect this will have on the Fed, the AJ Bell team warned it could mean the Federal Reserve attempts to pull interest rates down more quickly in order to get yields to lower. The US however saw a strong GDP growth figure of 2.8% for its third quarter, which will not be an impetus for further cuts.

“Either way, the Fed is expected to reduce interest rates faster than the Bank of England, but even here the markets have become a little less optimistic in their expectations,” Mould, Hewson, and Coatsworth said.