America goes to the polls

By the time anyone reads this, we may know who will hold the keys to the White House for the next four years—or maybe not. Remember George Bush’s protracted victory. According to the bookmakers, the odds at least remain with Trump and the commentary possibly with Harris. According to Bitcoin, I would go with Trump. As an investible asset, I have no idea; as a measure of sentiment, it may have its place in the economic environment. How will the markets react to a Trump victory relative to a Harris victory? Knowing little about US politics, I sense the answer lies as much in the outcome between the two as in the result of the balance of power in Congress. The outcome will play an important role in determining how easily the winner of Tuesday’s U.S. presidential election will govern until the next congressional elections in 2026.

Then, straight after the outcome, we got the Federal Reserve meeting. How much will the election outcome influence their decision? I think everyone expects the Federal Reserve to cut by 25 basis points; I guess the question is, will they endorse the market expectations of another cut in December? Treasury yields have been rising in the past month as investors are concerned that a Trump victory and his commitment to increasing tariffs will affect inflation rates in the coming years. Undoubtedly, being able to import cheap manufactured goods from the likes of China has impacted the US economy, both good and bad. If one wants to understand better how, it’s worth spending the time to read Dharshini David’s book, The Almighty Dollar.

Then we have the Bank of England. Will we get any reflections from Andrew Bailey on the Rachael Reeves budget? I imagine not. There is a risk that the uncertain impact of last week’s Budget might lead the Bank to sit tight and await more economic data. ​But I doubt it; that would feel like a very political move. But the decision is not as simple as it might have been. Two-year gilt yields, the most sensitive to rate expectations, now stand at 4.5%, which were a whole pct lower not so long ago, suggesting the bond market is reigning in its expectations for how quickly Mr Bailey and his gang will look to ease policy further. The fear is that a tax that falls squarely on the private sector to facilitate more spending on the public sector doesn’t feel like a recipe for growth. The danger is it is a recipe for stagflation, something Mr Bailey will not want to contemplate.

November has historically been a good month for stocks, that may be put to the test in the coming week.