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 roared to record highs on Wednesday while the dollar and Treasury yields soared as Trump’s White House return brought what many see as his inflationary tariff raising and tax cut plans into view.
Stock futures 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 surging more than 10 basis points on Thursday to near four-month highs. And that’s helped the euro 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 ebbed slightly from 2024 highs set near 4.6% on Wednesday after the U.S. election result as the BoE decision was awaited. Sterling 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.