Focus shifts to the BoE and FOMC

European markets are attempting a fresh push higher, after yesterday’s US election rebound that fell flat on its face. However, European equities remain caught between the desire to follow US equities higher, and head lower on concerns of a trade war and loss of support in Ukraine. The threat of the US leaving Europe to support Ukraine single handedly does pose a particular risk to European stability, with the vast sums spent on the war driving up spending and borrowing against a backdrop of rising yields. The DAX has been to notable standout performer, as the German chancellor fired his finance minister, called a confidence vote, and paved the way for early elections. With Chancellor Shultz pushing back against their coalition partners insistence that spending should be limited in the face of rampant military outgoings, there is a hope that this move would see the government push forward with measures that will also prioritise getting the economy back on its feet.

US markets look to be calming down after yesterday’s fireworks, with the S&P 500 having enjoyed its best post-election day rally on record. Financials provided the brightest spot, with the combination of higher rates, a strong economy and favourable regulations expected to boost stocks in the sector. Big tech managed finish strongly, with Nvidia hitting record highs and overtaking Apple as the world’s largest company. After the initial excitement, markets appear to be taking a more cautious approach today, with tentative gains expected as we shift our focus towards the FOMC.

Today looks likely to shift the focus back onto the central banks, with the Bank of England and Federal Reserve both expected to cut rates by 25 basis points. With markets largely deeming a Trump Presidency as inflationary, we are already seeking a more cautious rate cut trajectory being priced in by markets. Meanwhile both the UK budget and Trump spending plans signal an environment for elevated borrowing as we go forward, pushing treasury yields higher as a result. While the rate cuts appear to be largely a foregone conclusion, the focus will instead centre around any shift in tone following the UK budget and US election.