Fed and BOE decide as US House awaited, Germany jarred
A look at the day ahead in U.S. and global markets from Mike Dolan
World stocks and bond yields pushed higher after Donald Trump's clear U.S. election win and a collapse of Germany's coalition redrew trade and debt-raising maps worldwide - just ahead of likely interest rate cuts from U.S. and UK central banks.
Wall Street stocks .SPX roared to record highs on Wednesday while the dollar and Treasury yields soared .DXY, US10YT=RR as Trump's White House return brought what many see as his inflationary tariff raising and tax cut plans into view.
Stock futures ESc1 held those gains overnight and are higher again ahead of Thursday's bell, with the S&P500 now eyeing 6,000 for the first time. Treasury yields and the dollar pulled back a touch as the Federal Reserve is widely expected to deliver another quarter point rate cut later - even if futures now see as little as three such cuts over the subsequent year.
Although Trump's fiscal powers rely on the yet-to-be-decided House of Representatives shift, the odds on a Republican 'clean sweep' of the Presidency and Congress have narrowed sharply. Markets now await details of Trump's cabinet - including his pick for Treasury Secretary.
European debt markets initially went the opposite way to Treasuries on Wednesday as the trade hit from likely Trump tariffs was read as a further depressant on the euro economy.
But Germany's ruling coalition collapsed on Wednesday as Chancellor Olaf Scholz sacked his finance minister Christian Lindner over his reluctance to lift spending and the so-called German 'debt brake' to revive the ailing economy - paving the way for a snap election early next year.
The prospect of a loosening of Germany's tight budget rules sent German and euro zone sovereign debt yields EU10YT=RR surging more than 10 basis points on Thursday to near four-month highs. And that's helped the euro EUR= bounce from four month lows too.
British markets, still digesting a planned surge in UK government borrowing after last week's budget there too, are now braced for the Bank of England's response on Thursday.
The BoE is widely expected to deliver its second rate cut of the year - a quarter point to 4.75% - but higher growth and inflation forecasts from the budget have seen markets reduce expectations of further cuts next year to just two or three.
Ten-year UK gilt yields GB10YT=RR ebbed slightly from 2024 highs set near 4.6% on Wednesday after the U.S. election result as the BoE decision was awaited. Sterling GBP= firmed a touch as the dollar retreated more broadly.
Elsewhere in Europe, Sweden's Riksbank cut its policy rates by a half point as expected, while Norway's central bank held the line and left rates unchanged.
In Asia, China's stock markets .CSI300, .HSI rebounded from Wednesday's hit on Trump's win and fears about his pledge to deliver severe tariff hikes on Chinese imports in particular.
As Chinese factories rushed inventory to major markets in anticipation of further tariffs from both the U.S. and the European Union, October data showed China's exports grew at the fastest pace in over two years.
How long that can last is an open question - and in an indication of how weak the domestic Chinese economy remains, imports fell 2.3%, compared with expectations for a drop of 1.5% - turning negative for the first time in four months.
Details from this week's top Chinese leadership meeting on the size of the planned fiscal boost there are still awaited - speculation is rife that supports may be increased now that Trump is back at the helm in Washington.
Back on Wall Street, the unfolding post-election political drama and Fed meeting hold sway - with weekly jobless numbers and productivity data the only macro inputs before the Fed decision and press conference.
A heavy earnings season diary remains in the backdrop, with Qualcomm QCOM.O shares up almost 7% overnight after its latest results beat.
Key developments that should provide more direction to U.S. markets later on Thursday:
* Final results on US House of Representatives election awaited
* US Federal Reserve policy decision and press conference from Fed Chair Jerome Powell
* Bank of England policy decision, monetary policy report and press conference
* US weekly jobless claims, Q3 productivity and unit labor costs, September consumer credit; Mexico October inflation
* US corporate earnings: Airbnb, Expedia, News Corp, Moderna, Consolidated Edison, Halliburton, Molson Coors, Warner Brothers, Tapestry, Arista Networks, Axon, Motorola, Akami, Insulet, Corpay, Ralph Lauren, Hershey, Monster Beverage, Evergy, PG&E, Fortinet, Duke Energy, Vistra, Mettler Toledo, EOG etc
* European Central Bank chief economist Philip Lane and Dutch central bank chief Klaas Knot speak
House yet to be decided - election results https://reut.rs/4fgRjMc
Fed rates and inflation as Thursday cut awaited https://tmsnrt.rs/3U8HdD2
BoE cut rates in August for first time since 2020 https://reut.rs/3YuZoY2
China's export growth accelerates ahead of US election https://reut.rs/3YVV57W
Election shifting sands https://reut.rs/4fdIqDf
(By Mike Dolan,
mike.dolan@thomsonreuters.com)
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