All Eyes on BoE and Fed Ahead of Expected Rate Cuts

At 1200 noon today, markets will turn their attention to Threadneedle Street where the Bank of England are widely expected to cut their benchmark policy rate by 25bps to at 4.75%.

This would mark the second rate cut during this current cycle and follows their decision in September to hold rates.

Since then, last month we learnt that UK inflation came in below forecasts for September, with headline CPI easing from 2.2% in August to 1.7% last month, bringing inflation down to its lowest level since April 2021.

Meanwhile, across the Pond, at 19:00 this evening the Federal Reserve are also expected to conduct a 25bps rate cut to bring their benchmark interest rate to a target range of 4.5%-4.75%. This comes as money markets are implying that there are four 25bps rate cuts priced into the market between now and September 2025, though markets will be keeping a close eye on the extent to which Trump’s fiscal plans could impact the Fed’s monetary policy pathway.

Despite the looming possibility of US tariffs on Chinese imports, China widens its trade surplus to$95B, beating expectations by over $20B for the month of October.  Yet another landslide beat on expectations further stimulates concerns over its comparatively weak domestic demand. In September the IMF distressed that the “overcapacity could lead to a China shock 2.0 —a surge of exports that would displace workers and hurt industrial activity elsewhere.” This comes at a time where Trumps victory threatens to impose 60% taxes on all imports from China. The extent to which these taxes can nullify the effect on domestic currency is yet to be seen.

Considerations now turn to the implications that a second Trump term could have on Ukraine.

While Trump referenced the conflict during the campaign, with just 1 in 20 US voters seeing foreign policy a top issue, Europe’s interstate war has perhaps not dominated headlines in the same way it has this side of the Atlantic. Nonetheless, concerns are now being raised that the forthcoming Trump Administration could involve Washington withdrawing support for Kyiv. Such concerns have been exacerbated given that the President Elect’s VP, JD Vance, has criticised US’ military and financial support for Ukraine. For example, when running for his seat in the Senate in 2022, Vance proclaimed that “I gotta be honest with you, I don’t really care what happens to Ukraine one way or another.”

Trump has repeatedly said that he would be able to end the fighting in Ukraine, without any sort of roadmap or indication of how he would do so. In January, this rhetoric was met by retort from Zelenskyy, who said “Donald Trump, I invite you to Ukraine, to Kyiv. If you can stop the war during 24 hours, I think it will be enough to come”

Trump was of course thought to play a pivotal role in some Republican Congressional members seeking to block a $60bn military aid package for Ukraine, earlier this year.

Throughout the election campaign, concern has been raised by Kyiv over whether Washington could take unilateral action vis-à-vis Russia. Some commentators remain particularly concerned that Ukrainian territory could be ceded.

For more on this topic Euro news have written an article exploring some of the themes discussed.

https://www.euronews.com/my-europe/2024/11/06/ukrainians-fear-trump-return-could-threaten-their-future

The Vice president of the ECB gave a valuable speech on recent economic developments and monetary policy decisions on Wednesday of this week. He stated that there were that the Eurozone is beginning to show “signs of weakening price pressures” and that the “disinflationary process is well on track”. Despite this, Mr De Guindos remarked that “inflation is set to rise in the coming months but decline to the 2% target next year as labour cost pressures ease”. This comes off the back of a recent 25bps cut and the commencement of the ECB’s balance sheet reduction that is to be announced later this afternoon.