Donald Trump won the US election to become the next president, and it seems that the Republicans likely won a majority in both chambers of Congress. Trump was slim favourite ahead of the election, so the result was partially priced in already, but there was still a clear market reaction in that bond yields are up by some 10bp, the USD has strengthened around 1% and US stock prices are up by 4-5%. As has been the case for months, the market expects a Trump administration to mean an even more expansionary fiscal policy, higher tariffs (which imply a stronger USD) and deregulation, which could improve corporate earnings.

At its meeting just after the election, the US central bank delivered a 25bp rate cut as expected and did not send any new signals regarding the rate outlook. Part of the increase in bond yields since and just before the election is driven by higher inflation expectations, as the Trump policy agenda is seen as more inflationary. If this continues, it could eventually lead to the Fed becoming more hawkish and signalling that rate cuts could end earlier, but so far, inflation expectations have not become excessively high. Actual inflation was to the high side in September, but that might well look better in the October number that we get on Wednesday, likely the most important data release of the week.

In Europe, bond yields did not follow US yields up. Instead, there was a modest decline in short-term rates, as the result was seen as increasing risks of lower growth in the European economy and hence increasing the probability of ECB rate cuts. As we see it, this risk should not be overstated, at least in the short term. Although European exports to the US could well face higher tariffs from next year, it seems highly unlikely that the tariffs will result in a tightening of US fiscal policy and hence a dampening of global demand and US imports. However, there is in any case increasing concerns over European growth and the risk that inflation could become too low, and we maintain our expectation that the ECB will cut rates by 25bp at every meeting until September, with the possibility that they might chose a 50bp rate cut at the next meeting. One reason is the outlook for fiscal tightening in Europe in 2025. In the coming week, we will get updated forecasts on this and the economy in general from the European Commission.

Further complicating the situation, the German government has collapsed, partly over disagreement about fiscal policy. Markets see an increasing chance that fiscal policy might be eased in the longer term.

The Bank of England delivered a 25bp rate cut this week as expected, but also turned a bit more hawkish as it revised its inflation and growth outlooks substantially higher. Central banks in Norway and Sweden went in opposite directions with a hold in Norway and a 50bp cut in Sweden, see the Scandi Update section.

We did not get the hoped-for concrete numbers for fiscal stimulus in China, other than a statement that it will be “forceful”. However, there was an announcement of a CNY 6tn local government debt swap program which should ease the situation for local governments and make them able to support the economy more. All in all, it remains unclear to what extent policies will be able to turn the situation around for Chinese growth.

Download The Full Weekly Focus

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD remains pressured below 1.0800 on renewed USD strength

EUR/USD remains pressured below 1.0800 on renewed USD strength

EUR/USD stays under pressure and declines toward 1.0750 following Thursday's recovery. A renewed US Dollar uptick and a cautious mood weigh on the pair, as traders digest the Trump win and the Federal Reserve's monetary policy announcements.

EUR/USD News
GBP/USD holds lower ground near 1.2950 amid tepid risk sentiment

GBP/USD holds lower ground near 1.2950 amid tepid risk sentiment

GBP/USD trades in negative territory at around 1.2950 in the second half of the day on Friday. The emergence of dip-buying in the US Dollar and a tepid risk tone undermine the pair. The BoE’s cautious rate cut could check the pair's downside as traders comments from central bankers.

GBP/USD News
Gold fluctuates below $2,700 amid stronger USD, positive risk tone

Gold fluctuates below $2,700 amid stronger USD, positive risk tone

Gold trades below $2,700 in the early American session on Friday and is pressured by a combination of factors. Hopes that Trump's policies would spur economic growth and inflation, to a larger extent, overshadow the Fed's dovish outlook, which, in turn, helps revive the USD demand.

Gold News
Week ahead – US CPI to shift market focus back to data after Trump shock

Week ahead – US CPI to shift market focus back to data after Trump shock

After Trump comeback, normality to return to markets with US CPI. GDP data from UK and Japan to also be important. But volatility to likely persist as markets assess impact of Trump. 

Read more
October’s US CPI rates to be the next big test for the greenback

October’s US CPI rates to be the next big test for the greenback

With the US elections being over, Trump getting elected and the Fed having released its interest rate decision, we take a look at what next week has in store for the markets. On the monetary front a number of policymakers from various central banks are scheduled to speak at some point or the other.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures