All polls, commentators and most betting odds were completely wrong about the US election as incoming President Trump gained a clear majority and a clean sweep, handing him a license to do pretty much what he feels like. His subsequent cabinet appointments show that he has lost none of his ability to surprise and amaze. The ‘Tariff man’ also lost no time in announcing potential levies on US imports, starting at 10% , 60% on China and up to 100% (?) on neighbouring Mexico. This offers the prospect of a much bigger global trade war than his last effort and can only weigh on global growth prospects.

The Fed (a bunch of ‘boneheads’ according to Trump) cut 25bp two days after the election result and its Chairman fought back against speculation that he would be sacked, saying he would not step down if asked and it is ‘not permitted under the law’ for the White House to force him to do so. Trumps economic policies are potentially inflationary and the Fed reiterated it is in no hurry to cut further than another potential 25bp in December. The appointment of Bessent as Treasury secretary is seen as pro growth and it looks as though the US stock market rally still has legs.

The Eurozone has rather different prospects and remains in the doldrums, not helped by the collapse of the German government coalition. France also remains in political limbo and OATS have reflected this, the yield gap between bunds at its widest since the eurozone debt crisis. Spain is well inside them and Greece looks to be heading that way. PMI’s remain uncomfortable reading for the core economies, so further rate cuts are anticipated.

Our new UK government lurches from one difficult situation to another. The long awaited budget was predictably brutal, especially for employers (Tesco’s bill being estimated at £1bn), but falls far short of funding Labours plans so the Gilt market will have to take more of the burden. The funding plans for 2024/25 are now close to £300bn and a fair chunk will be coming from the long end, hence we saw the 30 year Gilt trade at over 5%, a level not seen since the ‘mini budget’, the move from mid Septembers level of 4.30% has involved more than a 10% price loss. A recent move back materially above 2% in inflation limits the Bank’s room for manoeuvre and potentially takes any December cut off the table.

Amongst all this the primary market for corporate debt carries on with high demand and narrow new issue premiums. Credit spreads remain resilient, we have seen a little leak wider but any move appears to be met with sustained buying.
 

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