Markets React to US Polls, BoE, and Fed Rate Cut Speculation

You’ll see the media report ‘Iowa poll sees markets revise Trump trade’. Nothing has changed, yet: the polls have shifted a tiny bit – they are bound to - we are talking wafer-thin margins and all well with the margin for error...a new poll shows Harris leads in Iowa with a notable shift among women voters...Trump won Iowa by 8pts four years ago. So the commentariat are attaching significance to this and ascribing a motive for market moves.

An NYT/Sienna poll shows signs that late deciders are breaking for Harris, whilst also finding that Harris is showing new strength in North Carolina and Georgia as Trump goes ahead in Pennsylvania and maintains his lead in Arizona. The NYT/Sienna data also points to key groups of voters splitting their tickets by voting for a Democratic senator and Trump. It also points to Harris having some trouble with male volunteers in some labour unions, who are needed to get the vote out.

Maybe the dollar is a tad weaker because of the Iowa poll, or maybe just vibes. Maybe the super-soft nonfarm payrolls...lots of maybes. Bitcoin is down to $68k from $73k last week.

Historical comparisons provide a nice view – but could be misleading. Unlike 2016, Trump is a known quantity, and unlike 2020 he is not the incumbent. But overall, we are seeing Trump looking solid enough on ReaClearPolitics, and Harris’s lead nationally over Trump via 538 has come down a lot.  

Stocks came off last week. The FTSE 100 trades firmer to the tune of half a percent in early trading with crude firmer. Oil is a bit higher having gapped up overnight following Friday’s steep fall – Iran tensions and OPEC+ delaying planned output increase by a month. The DAX and CAC are essentially flat. Gilt yields are steady, a couple of bps off last week’s highs, but not moving any further out.  

It’s not just the US elections this week - both the Federal Reserve and Bank of England are expected to cut interest rates. The BoE is forecast to lower rates to 4.75% from 5% after the latest CPI inflation report slowed to 1.7%, the first time it has dropped below the Bank’s 2% target since 2021. Core inflation fell to 3.2%, also below forecast. The key services inflation figure dropped from 5.9% to 5.6%, whilst the core services fig dropped from 5.6% to 4.9%. All indications point towards the BoE cutting but the question is how far and how fast after this meeting given the extra borrowing and spending in the Budget last week.

It’s a similar story for the Fed: it’s expected to slow its pace of easing down to a 25bps cut, having cut by 50bps on September 18th. Since then, Treasury yields have risen sharply as US economic data proved stronger than anticipated. The Fed is now taking it easier than it did before, but in terms of the outlook beyond this meeting, a lot will depend on the election result and how markets react.