The US election marked another significant moment in a year filled with political tension. As numerous countries prepare for elections in 2024, analysts have speculated about market reactions for some time. It’s debatable whether Trump enjoys popularity beyond the US, but his electoral win was decisive, and markets have reacted favorably as a result far.
United Kingdom
Keir Starmer and Rachel Reeves have not entered power with a favourable economic backdrop. Their first budget in 14 years has faced significant scrutiny, exacerbated by weak economic headlines in November. The UK economy grew by just 0.1% in Q3 2024, down from 0.5% in Q2 and 0.7% in Q1, falling short of analysts’ 0.2% growth prediction. The ONS attributed the slowdown to a drop in manufacturing output and IT sector activity, despite a rise in car sales. Business investment rose 4.5% compared to 2023, but exports fell for the third consecutive quarter, further weakening Britain’s trade position. Reduced imports offset some trade damage as consumers cut back on foreign goods.
The budget has faced criticism for creating uncertainty before its release and denting business confidence with higher National Insurance costs. While some blame may be premature for the new Chancellor, her emphasis on stimulating growth means she will be judged on this outcome.
The Bank of England cut the base rate by 0.25% to 4.75% in November, but further cuts are unlikely in December due to the budget’s potential impact. However, the broader trajectory toward interest rate normalisation remains unchanged. The government faces mounting pressure to deliver economic growth.
Europe
The euro zone’s economic woes continue. Manufacturing activity fell sharply in November, following some improved signs in October. A further decline in demand has probably scotched any hopes for an quick recovery. The drop in demand has resulted in factories reducing headcount.
Germany and France are performing particularly badly, with Italy not far behind. Hamburg Commercial Bank’s euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 45.2 in November, well below the 50 mark which separates growth from contraction.
“These numbers look terrible. It’s like the euro zone’s manufacturing recession is never going to end. As new orders fell fast and at an accelerated pace, there’s no sign of a recovery anytime soon,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Foreign demand is also falling and a 10% tariff on imports into the US will hurt manufacturing further.
France is also troubled by more political turbulence. PM Michel Barnier’s budget proposal could result in a far-right led no-confidence vote designed to unseat his government. French bonds and stocks have suffered.
United States
The US presidential election was decided on 5th November.
Markets responded positively to the news. As we have said many times, markets don’t care about politics but they do care about certainty and predictability. A Trump win seemed to be priced in for some time. Despite his public unpredictability, his second term may be easier to form an advance view on than his first.
The main area of concern for economists is the President Elect’s aggressive stance on trade tariffs. President Biden continued with a number of the trade tariffs imposed by Trump in his first term, and even added a few more of his own. However the threats of tariffs of up to 60% are an escalation on what came before. Whether this is Trump posturing ahead of milder tariffs is unclear, but a number of major manufacturers are now accelerating plans to move their factories out of China to avoid the most obvious outcomes of a trade war.
The Fed will met on 7th November and made a further 0.25% cut to interest rates. As in other parts of the world they added a note of caution around further cuts but are not expected to change policy. They remain more concerned about the job market than inflation.
Far East
In response to economic headwinds this year, the Chinese government introduced a substantial stimulus package, including the issuance of 2 trillion yuan in special sovereign bonds and a 50 basis point cut in the reserve requirement ratio. These measures aim to bolster domestic demand and support sectors such as real estate. There were early signs in their economic data that this was starting to improve the economy. Manufacturing showed increases in new orders and production, including a rise in new export orders. Employment rates continued to decline, but at a slower rate. Chinese equity markets were volatile, and the Trump election added to the uncertainty. BBVA Research believe the tariffs could reduce China’s growth by 1%.
Japan’s core inflation continues to grow, fueling expectations that the Bank of Japan will hike interest rates by a further 0.25% in December. At the same time factory output fell and corporate recurring profits were down. Clarity on US trade tariffs appears to be stalling some investment.
Emerging Markets
Emerging markets saw mixed performance due to global economic conditions, currency fluctuations, and geopolitical developments. The US dollar strengthened, driven by President-elect Trump’s support for its reserve status, pressuring emerging market currencies, with the Brazilian real hitting a record low over fiscal policy concerns.
Trump’s push for increased oil production benefitted oil-importing nations but challenged oil-exporting economies.
In India, strong economic growth and consumer demand sustained foreign investor confidence despite challenges for firms like Adani Group. Meanwhile, JPMorgan upgraded Mexican equities to “overweight,” citing strong US growth and robust remittance-driven consumer spending.
Conclusion
Another significant date in the political calendar has passed with the conclusion of the US presidential election. While Trump is known for his unpredictability, the markets appear more at ease with his second term compared to the first.
Positive performance in the US is always advantageous for equity portfolios due to their global importance.
Despite the uncertainty introduced by Labour’s initial budget and the potential for high US trade tariffs, we remain confident that interest rate normalisation will continue into 2025. This may cause some delays in the process, but we believe the overall trend will persist same.
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 0333 241 3350 or email info@richmondhousewm.co.uk
The information available through Richmond House Wealth Management is for your general information. In particular, the information does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be taken before making any such decision. Past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and you may not get back the money you originally invested.
Richmond House Wealth Management is a trading name of IWP Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. Financial Services Register:441359 at register.fca.org.uk. Registered Office: Blythe Lea Barn Mill Farm, Packington Park, Meriden, Warwickshire, CV7 7HE. Company Number 04138186.